Second Quarter 2019 Market Report

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Today’s Market Sentiment

Some high-net-worth have investors expressed their intent to reduce their exposure to individual stocks, and their plans to shift capital toward stock mutual funds, individual bonds and cash in the month ahead.

These individuals are expressing their personal market sentiment, or their general feeling about the climate of the market as expressed by the direction of market prices. Market sentiment is more about peoples’ perceptions than anything else.

By reducing exposure to individual stocks, they either feel that prices are too high currently, or they anticipate rising prices in the near future. If so, both are bullish. Or, they either feel that the market will decline in value, or certain securities will. If so, both are bearish.

So it remains a bull market for now, and experts remind us that sentiment indicators are only one piece of data and not meant to be a timing signal.

Last year’s winners could be this year’s losers

The S&P 500 is up 17.5% year-to-date through April 30, which marks the best start to a year since 1975 and the second best over the last 75 years. When companies like Apple, Amazon, Facebook, Google and Netflix are doing well, they lift the S&P 500. Overreacting to highs is probably not a good idea, just as it wouldn't be a good idea to overreact to the lows of December either.

Group sentiments, attitudes, and expectations (crowd psychology) affect future stock prices. Maybe these investors know something, or at least think they do. They get locked into a perspective.

Basic fundamentals

Earnings are driving the market. Some bank sector watchers were relieved, at best, that large U.S. banks beat the street’s sour expectations with strong cash inflows. It’s generally a good sign for the economy, and the markets, when large banks beat earnings and income. But it won’t happen all the time. Similarly, financial advisors know the primary determinant of investment performance over time is asset allocation and how to achieve diversification, not market timing or security selection.

Being diversified, that is, having a portion of your funds allocated among all types of equity investments, lessens the impact to your portfolio if one sector gives lower than expected or negative returns based on sour expectations that play out that way.

The other sectors might perform better than expected to offset the event. It is designed to steady your portfolio performance over time. But you must resist the urge to abandon the diversification of your portfolio.

Selection of securities is based on your risk tolerance

Again, the sentiment is all about how you feel about the market, how you feel about your current situation and what you are willing to risk or gain. Obviously, market sentiment influences stock and asset class selections, so having discussions with your financial advisors must take place prior to doing anything.

Having built-in diversification can come from using indexed securities to track various indexes, such as Standard & Poor’s 500 Index, S&P 400 Mid-Cap funds and S&P 250 Small-Cap funds. One of the best-known indexes, Standard & Poor’s 500, tracks larger, well-known U.S.-based businesses representing a wide range of industries that resonate with some investors.

Emerging growth are brand–new ventures of high risk and also high reward. These are not for the faint of heart. Remember internet stocks?

When investing in well-established companies, selecting growth investments is basing success solely on the company’s earnings growth, like the U.S. bank example above, or stock price growth over time.

When selecting value investments you are basing its success on temporarily being out of favor and undervalued. Most times, investors ‘fall out of love’ with the stock for whatever reason, including bad management, which is common. With new management, however, the company could generate solid earnings again and have the potential to rise. The benefit to you is buying the stock at or near its lowest price, adhering to the investment philosophy, “buy low, sell high.”

Advisors suggest growth should occupy part of your overall portfolio mix, keeping in mind past performance is no guarantee of future results. Growth stocks are typically in it for the long haul. Growth and value stocks can work together well.

Highlighting the importance of having a comprehensive financial plan and breaking down how to incorporate smart investment planning strategies are what we do for our clients. No two clients are the same, so we customize financial plans based on your particular needs and goals. Find out more.

Together, we can build a custom-tailored MASTERPLAN® to fit your needs and goals. Contact us today and we can talk about it.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.
Hefren-Tillotson

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