Object in Motion

Anyone who has taken a high school physics class remembers Sir Isaac Newton’s First Law of Motion. To paraphrase: an object in motion stays in motion unless acted upon by an outside force. Although Newton was describing physical objects like planets and the heavens, the same basic concept is true for the economy and markets.

Over the past century, the U.S. economy has spent most of the time expanding. When recessions did occur, it was not because the expansion died of old age or simply ran out of steam. Rather, recessions had a cause. Importantly, those causes are not present today, even as the expansion is set to become the longest on record. This gives us confidence that the economy will continue to grow and drive further gains for stocks. The main risk to this optimistic outlook is that the trade war with China knocks the economy off course.

Newton had another famous law – the Second Law of Thermodynamics – which states that the universe moves over time from order to disorder. Just the opposite is true for the economy. Since the beginning of history, people have sought to improve their lives. Entrepreneurs, in turn, have sought to profit by creating goods and services to satisfy peoples’ wants and needs. Over the centuries, these activities became increasingly coordinated and eventually gave rise to the modern economy and financial markets. By owning stocks, investors can harness these perennial forces to generate wealth. This is why we believe in owning stocks for the long run despite the ever-present uncertainty faced by investors.

In this quarter’s report, we review market performance, suggest how investors should navigate the trade war, and provide reasons for our optimistic outlook for the remainder of 2019.

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