The Markets - Focusing Forward & Glancing Behind

Lions and Tigers and Bears, Oh My!


We recognize the risks and yet remain cautiously optimistic as we head into earnings season.  We expect earnings to be a bit of a mixed bag which will concern many market participants more than it will concern us as we focus on longer-term developments.   

As Judy Garland and her entourage wandered through the dark forest they perceived dangers nearly overcame them, but were they real or perceived? 

There are so many things to be concerned about as we look at the worldwide economic situation that it may be easy to despair.  True to form the news outlets make money from selling negativity and that is what we are hearing the most of lately.  After bearing witness to a slew of anemic economic data inputs the Federal Open Market Committee (FOMC) turned even more dovish.  Some take this stance as bullish while others see it as a sign of concern from the Fed that should be considered bearish.  In my experience bull markets do not die of old age, instead, they die from a misstep in fiscal policy, or some other catalyst stemming from a significant geopolitical event.  As I see it, the Fed managed to gain back some recession-fighting ingredients by raising rates and reducing their balance sheet while they were able.  They are now, prudently waiting to see if it will be necessary to use some of that proverbial dry powder by potentially even cutting rates again.  Some good old boring stability from the Fed might be just what the market needs to stay healthy for now.  While we certainly have the potential for a major geopolitical event whether it be from developments in the trade war or developments on the Brexit front, we remain cautiously optimistic.  The Mueller report came in as we expected, if not exonerating the President, at least saving him from immediate impeachment which could have thrown the markets into disarray. 

We recognize the risks and yet remain cautiously optimistic as we head into earnings season.  We expect earnings to be a bit of a mixed bag which will concern many market participants more than it will concern us as we focus on longer-term developments.   

We are closely watching the plans for Brexit in Europe as well as the trade war with China and potential trade conflict with European countries and how that may impact investor sentiment.  There is not much news to report at this point on either issue other than Brexit officially did not happen on March 29th, and there is a new deadline set for April 12th that will likely also pass us by with Theresa May asking the E.U. for a further extension.  However, she could, on the 12th, carry out a “hard” Brexit in which case we would expect her tenure in her time in office to be cut very short.

We are also watching, with interest, the current yield curve inversion where longer-term rates have moved below shorter-term rates.   We have moved many of our positions to the shorter end of the curve over the past several years due to the relative flatness of the curve and are not surprised to see this event occur.  Interestingly, although there is quite a lot of uproar regarding the inversion, to us, the yield curve still appears relatively flat.   The treasury yield curve is, in fact, currently inverted at points along the way but when fully extended to thirty years it certainly is not.  

yield Curve


Many would correctly say that historically a yield curve inversion has been one of the most consistent predictors of a recession occurring within the next 12 to 18 months.  Realizing the dangers of this following statement, I take the view that things just might be different this time.  Our formula includes the following: 

1.    Add the extreme measures our own Federal Reserve took in purchasing an unprecedented amount of government debt since the 2007-2008 crisis

2.    Add the recent announcement from the FOMC that they would stop reducing their balance sheet

3.    Then add in the fact that yields in the U.S. are still attractive to foreign entities compared to returns they can achieve in their home currencies

4.    We believe the sum to be a situation we have not seen before that does not necessarily indicate an impending recession.  

Now there were bumps in the proverbial economic road as employment numbers came in a bit below expectations as did retail sales much of which were attributed to extreme weather this winter.  As always, we encourage our audience to remember that one number a trend doth not make.  Early in this current quarter, we have already seen an uptick in the job numbers.  We also encourage our audience not to underestimate the ability of the American consumer to do their jobs.  As such we anticipate a normalization in retail sales.  Slower GDP growth, durable goods, and manufacturing are, in our opinion, to be expected given the ongoing trade negotiations between the U.S., China and other nations around the globe.  We would also point out that slower growth means that these indicators were still growing rather than moving into negative territory.  We have confidence in American business leaders and American workers to adjust, however painful it may be in the short to intermediate term.  We believe the risk is currently higher for the overseas markets than for U.S. domestic markets currently.  As such we are being ever more selective in our overseas investment allocations.   We acknowledge the move higher in the Chinese equity market but feel that was largely a result of heavy government fiscal intervention.  We fear it will take much more for this move higher in China to be sustainable as the trade talks continue with the U.S.   As we move around the globe, we run into Brexit concerns as we previously discussed and the continuing threat of looming trade talks with the U.S. which are concerning us on that side of the pond as well.   We are watching European manufacturing and other indicators falling particularly in Germany with some concern. 

Please give us a call with any questions you may have and be sure to ask about our Advocacy Investment® or other Thematic investment programs.   Marc J Lane Investment Management Inc. is a wholly owned subsidiary of Guardian Rock Wealth and provides a variety of investment and planning services.  You can reach us at 312-372-5000 and we would enjoy speaking to you about how we can help you with your specific situation and desired outcomes. 

About the author: 


John Browning 


As a certified financial adviser, Mr. Browning serves as the Chief Executive Officer of Guardian Rock LLC.  In addition to providing oversight to the activities of the entire firm, Mr. Browning also has direct involvement in the investment committee and with portfolio decisions impacting specifically customized portfolios. 

Mr. Browning is a graduate of Cedarville University in Ohio and later obtained his MBA from Northern IL University.  John is also a Certified Senior Advisor (CSA®).  John brings nearly 30 years of Wall Street experience, an analytical, economics and portfolio management background to pair with years of leadership and strategy experience.   John has served in various executive-level roles in the financial industry at large Wall Street firms including Morgan Stanley, Invesco, Guggenheim, and Nuveen and has extensive experience managing both fixed income and equity portfolios.