Cautiously Optimistic

Cautious Optimism. My son, John, is graduating from Luther College with a degree in music composition.  He applied to several graduate schools with the hope of studying with a strong composer and obtaining support through a graduate assistantship.  He was cautiously optimistic about his chances because he felt he had really applied himself. Then, much like our bear market of late last year, the rejections began to roll in – not an easy time. And, then, just lately, two offers!  His stock was back up!  One is to the University of Memphis and the other is to the University of Denver.  As you can imagine, I am very happy for that young man.

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March 31, year to date. Much like John’s journey, the major stock indices posted -20%, from peak to trough late last year.1But they’re back up!  And, that recovery is in spite of current economic reports that have revealed an economy that is slowing more than expected in 2019. 

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We’ve often said that stocks are like a spring.  Last fall, the spring was stretched tight:  the Dow (DJIA) hit a record high close to 27,000.  Then, the spring snapped back, with the Dow falling more than 5,000 (-20%) by December 24, 2018. This year, we’ve seen the spring extended out again, as the Dow has closed on 26,000 (as of March 29, 2018), just 3% away from last fall’s record highs.(1)

Positive factors have included the Federal Reserve Board (FED) making some beautiful music about interest rates in January – saying they will be patient in raising interest rates.  In addition, markets are assuming that China and Washington will harmonize on trade.

Risks include unemployment below 4%, making it more difficult for businesses to hire and grow; the high expectations around the China - U.S. trade talks; and, the relatively high expectations for a Federal Reserve interest rate cut in 2019.(2) If difficulties materialize in the trade talks or there are unmet expectations on interest rates, the markets may well strike some sour notes.  Oil prices are rising as well, creating more expense for consumers and businesses; this could slow the economy as well.

Our Outlook.  Our outlook is cautiously optimistic for the rest of 2019, much as John’s was going into the graduate school process.  We give recession and a serious bear market a 25% chance during that time, growing to 35% by late 2020.  That means, of course, that our outlook cautiously leans toward continued growth.

Defense and Offense.  Investing is a combination of offense and defense. And, of course, there are many variables – a world-wide orchestra if you will, though we could wish that some of the musicians would play better together!  

In terms of defense, because we are late in this upcycle, as suitable, we’ve already taken risk off the table on your behalf, transitioning your taxable high-yield bonds to quality bonds late last year.  High-yield bonds have been in an excellent environment over the last nine years – they thrive when an economy is strengthening.  But, they struggle during a recession/bear market.  Additionally, we have maintained equity allocations to near neutral for your strategy.  And, of course, your bond allocation is a highly important type of defense.

Your equities are your offense, as are the contrarian strategies of buying when stocks are at a bargain and taking some profits when they are “frothy.”  In addition, we continue to update your portfolio for opportunities.  Recently, where suitable, we recommended an increase in international bonds because those yields are generally higher than the equivalent bonds in the U.S., and are likely to stay higher with a patient Federal Reserve Board.  

If you would like information on more investment specifics, consider visiting Point of View.

On another note (pun intended).  If you have friends or family who are going through divorce or loss of a loved one, consider sharing complimentary resources from our website.  We have poured the last twenty years of work and wisdom into developing these checklists and videos to offer assistance to folks going through those difficult times.  Visit our complimentary Resources and scroll down to the “Divorce” or “Loss of a Loved One” section. I have often thought that growing this business is my creative outlet, and it feels to me that these useful resources are part of our type of music!

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Office News. Mallory and I had the honor of joining the Faculty of the Family Law Institute and attorney, Linda Wray, to share strategies on “Client Well-Being Post Divorce.”  The audience was comprised of family law attorneys and other professionals. And, we are happy to share that we have been asked for an encore! Our presentation is soon to be webcast.

Of course, our mission is to help you make the music you desire for your life.  As always, please let us know your comments and questions.


(1) Data from  

(2) As evidenced by the federal funds futures market pricing in about a 65% chance that the FED will cut rates by the end of the year.


  • Barclays Aggregate Bond: A representation of SEC-registered, taxable, and dollar denominated securities. The index covers the U.S. investment grade fixed rate bond market, with index components for asset-backed securities, government and corporate securities, and mortgage pass-through securities. Must be rated investment grade (Baa3/BBB- or higher) by at least two of the following rating agencies: Moody’s, S&P, Fitch; regardless of call features have at least one year to final maturity, and have an outstanding par value amount of at least $250 million.

  • S&P 500: Representing approximately 80% of the investable U.S. equity market, the S&P 500 measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested.

  • Dow Jones Industrial Average: The Dow Jones Industrial Average is a composite of 30 stocks spread among a wide variety of industries, such as financial services, industrials, consumer services, technology, health care, oil & gas, consumer goods, telecommunications, and basic materials. The index represents approximately 23.8% of the U.S. market, and is price weighted (component weightings are affected by changes in the stocks’ prices). 

  • MSCI EAFE (Europe, Australasia, Far East) Index: A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2, 2014, the index consists of 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. 

Important information.  The information on this and the previous page is not intended as a complete description of the securities, markets, or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Expressions of opinion are as of this date and are subject to change without notice.  This information is not intended for a solicitation or an offer to buy or sell any security referred to herein.  Investments mentioned may not be suitable for every investor.  Investing involves risk and investors may incur a profit or a loss, including the loss of all principal.  Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. This may result in greater share price volatility. These risks are heightened in emerging markets. Diversification does not assure profit or protection against loss.  Bond prices and yields are subject to change based upon market conditions and availability.  If bonds are sold prior to maturity, you may receive more or less than your initial investment.  Holding bonds to term allows redemption at par value.  Bond prices and interest rates have an inverse relationship. Dividends are not guaranteed and must be authorized by the company’s board of directors. The Bloomberg Commodity Index is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for the delivery of the underlying physical commodity. In order to avoid the delivery process and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as "rolling" a futures position.