2019 Mid Year Update

August 27, 2019

Schmolke Investment Team’s

2019 Mid-Year Market Outlook

We are doing a mid-year market update for our clients and prospects, because of all the volatility that we’ve recently seen in the stock markets. As we noted in our 2019 Market Predictions posted back in January of 2019, we expected a good year in the markets but forecasted a lot of volatility. Clearly, we were right on point up to this time of the year.

As a review, we discussed interest rates, inflation, employment, oil, corporate profits, debt and much more in our 2019 market predictions. So, in this mid-year market outlook we are going to look at the markets through the lens of the economy, which give us a unique preview of what could happen. When economic indicators turn down over a couple quarters, it is our experience a recession could follow in approximately 12 to 18 months. For clarification purposes, all our forecasts and projections are our own opinions and there are no guarantees as to what could happen in the markets. Our analysis is based on our over 35 years’ experience in the markets, and Experience Matters especially in this area.

We are officially in the longest bull market in U.S. history and that’s as of over a year ago (1), which has a lot of “market” watchers fearful of another stock market plunge. Most economists have commented that our economy is slowing, both in the U.S. and globally. The Federal Reserve Bank of St. Louis predicts that real GDP growth will slow from 3.1 percent in 2018 to 2.4 percent in 2019. The unemployment rate is forecast to average 3.6 percent in the fourth quarter of 2019, down slightly from four quarters earlier. And, inflation is expected to be 2.1 percent in 2018 and 2019 (2).

Because our economy is slowing doesn’t mean that we are heading into a recession anytime soon. Forecasting GDP growth at 2% to 2.4% is not that bad, in fact during the Obama administration the average GDP growth was 2.2% (3).

When is a recession coming and how bad could it be? This is a question on many economists minds. As market and economic analysis shows there is no known way to gauge this. There appears to be a persistent fear of a recession when every market correction happens, and when ever economist report of a slowing economy gets published. Also, the inverted yield curve recently triggered fear of an upcoming recession and sent the markets tumbling. The reason this spooked Wall Street is when short-term rates climb higher than long-term rates, defined as an “inversion”, this stifles lending by banks and in-turn hurts the economy. This has to happen for at least 3 to 4 months in our opinion to have any real effect on bank lending. If this does happen though, this could be an important indicator for the coming recession.

This is when you need an investment team with true market experience. One of the things we’ve learned over the years and watching many markets, is that over the long-term, the U.S. stock markets always follow the underlying U.S. and global economy. As the U.S. economy continues to grow, which we will show you is the case, we believe the markets will follow that same direction.

We believe there are many reasons to be optimistic that 2019 could still be an outstanding performance year in the stock markets. We continue to see good earnings being reported, which is always a good indicator. We believe that the political warfare, the trade war with China, fears of another Government shutdown and geopolitical factors have held down the markets. If any or even possibly all of these situations get lifted off our shoulders, we should see a nice bounce in the markets.

Lastly, we are coming into an election year and the current administration certainly wants to report a great economy and stock market performance coming into the elections. Year to date the S&P 500 is up 18.7% as of July 31, 2019 (Jan 2, 2019 S&P 500 was 2510.03 and on July 31, 2019 it closed at 2980.38) and we anticipate good market performance (6).

We do not anticipate a recession to start this year and probably will probably not start till sometime after the election in 2020. We expect the U.S. economy will continue to grow during the rest of this year and in 2020, but at a muted pace. We are also keeping an eye on the non-U.S. global growth, which if it slows faster it could step up the next recession. One other area of interest though, is the trade war with China. Although it may be arguably warranted, there is some risk that if it continues into 2020, it could accelerate the beginning of a global recession. At this point of the year though, the Schmolke Investment Team remains optimistic for the remainder of 2019 and a good part of 2020.

Please contact Brian at (318) 448-3201 or email brian.schmolke@lpl.com if you have any questions or want to schedule a confidential appointment. We appreciate any referrals as this is the best indication that we are doing a great job for you and your family! Referrals from our trusted clients helps everyone and allows us to do more for each of you.

Brian Schmolke

Bart Schmolke

Schmolke Investment Team

“Experience Matters”

This contains forward looking statements and projections. There are no guarantees that these results will be achieved. It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.

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2019 Mid Year Update