Apr 08 2019
April 8, 2019

What A Difference

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What a difference a quarter makes.  The 4th quarter of 2018 was a historical low for the US stock market.  1st quarter of 2019 saw historically high percentage rate market increases.  That is what is expected but it is always celebrated when it happens. 

Let’s quickly rehash what created problems for the market in 2018.  The Federal Reserve was raising its benchmark interest rate on a quarterly basis.  But the December hike was a rate increase too far for the market.  Traders showed their immediate displeasure with a selloff not seen since the Great Depression.  That got the attention of the Fed members who announced at their March meeting there would be no rate increases in 2019.  The market welcomed that news with a demand for a rate rollback.  President Trump jumped into the fray calling for a half percentage point rollback.  Fed watchers are predicting a rate reduction at the Fed’s June meeting.

Meanwhile, the US economy remains very strong.  Latest employment numbers show the demand for workers   remains high while unemployment is reaching new lows.  There are more jobs open than qualified workers to meet the need.  Mortgage interest rates have dropped and that has spurred new activity in the housing market.  The automobile industry is reporting a drop in new car sales, following several years of robust sales and price increases.

Outside of the US our trading partners are not faring as well.  The European Union is in an economic slowdown.     Germany is the engine pulling the EU and recent economic indicators are not good.  In fact, the German 10-year bond interest rate dipped below zero into negative interest rates.  For comparison, the US 10-year has stabilized near 2.5%.

Brexit has been delayed and delayed again.  The problem is the list of demands being placed on Britain by the European Union.  Britain has requested a delay until June for the exit deadline.   Failure to reach an agreement is increasing the prospect of a hard exit with no agreement.  That would be disruptive.  It would also tempt several other EU members to exit as well.  Keep an eye on Italy where major financial problems are bubbling over.

China has recently released economic numbers that show the economy there is improving.  That may or may not be true.  President Trump’s pressure on the Chinese does appear to be pushing the trade talks to an agreement.  Perhaps as early as May.  That would be a positive for the Chinese, the US and Europe.

So, here’s what we are doing with the Oak Springs portfolio.  We have reduced our international exposure while increasing our position in US stocks.  The one laggard position in the portfolio for the 1st quarter was Franklin Square.  The share price reported by Schwab at the end of the quarter was the actual share price reported by Franklin Square on December 31st.  The next change in the FS pricing will show in late June and should reflect an increase.