Q1 2019 Investment Commentary

Last newsletter, we detailed the stark reversal from 2017’s placid gains to 2018’s volatile losses. This year brought another about-face.

After the worst December on record, U.S. stocks had their best January since 1987. Further gains followed in February and March. In sum, Q1 2019 produced the best returns since Q2 2009, the months immediately following the March 2009 nadir of the Global Financial Crisis. 

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The main catalyst for the Q1 rebound was the U.S. Federal Reserve (the Fed). After signaling for most of 2018 that it expected more rate rises in 2019, the Fed reversed itself in late-December and January.


The U-turn was music to the markets’ ears. Higher rates tend to harm stocks for a couple reasons. They increase companies’ borrowing costs. And they make safe assets (e.g. U.S. Treasuries) relatively more attractive, thereby weakening demand for stocks.

While the Q4 2018 dive and early 2019 rebound has generated drama, the end result for investors has been ho-hum. Global stock markets were down a couple percent over the last two quarters, with little variance between U.S. and foreign markets.

Sharp market swings and the attention they generate remind us of an analogy. Portfolio manager Ralph Wagner once likened the markets to walking a dog:

The market [is like] an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.
— Portfolio Manager Ralph Wagner

The dog’s trip is unpredictable and quirky. In today’s information-saturated world, the dog generates headlines. Yet, ultimately much of it is noise. Our responsibility is to build your portfolio with the owner’s journey in mind. With that as our north star, we can determine what of the dog’s story is actionable and what is entertainment.