Market Outlook | President's Message

July 16, 2019

As we enter our 10th year of economic expansion, the chorus grows among experts and analysts on Wall Street that we will eventually, “Enter a recession and stock prices will surely enter a bear market”. All this correction and bear talk is quite good for the markets. Markets usually do what they have to do, to keep most people “off kilter”. Today, investors are not very happy because earnings are slowing, the economy is slowing, and valuations are a bit higher than normal. However, the competition for stocks today is very weak – yields on Treasury securities and even corporate bonds are not very attractive at all. As long as interest rates stay in an accommodative position, I believe stocks will continue their bullish run. What is going well in our economy today that is not fully priced into the markets?

  • Trade conflict between the US and China could eventually be resolved favorably. This may take some time. Both countries need each other badly and I  believe we will eventually reach a compromise and avoid further tariffs.

  • Productivity in our economy is ramping up nicely. Today my favorite sector of the economy is the digital transformation sector, which is essentially “smart” A.I. software that is helping businesses take costs out of the income statement. I believe companies' profits are elevated as our ability to cut costs continues to rise. Earning could continue to remain robust.

  • Investor psychology is very muted today. How do we know this? Investors continue to pull money out of equity funds on a regular basis. They are missing the party and they continue to exit stage left. This is again a good sign. Before the bull market is over, investors will be throwing money at this market.

  • Finally, bull markets usually follow a traditional script. They are born on skepticism, they growth on enthusiasm and they die on pure speculation. I believe we have not even entered the speculation phase yet. Older investors will remember the 1995‑1999 time period as the last real speculative phase in the markets. I doubt we get to that level of speculation on this cycle; however, we are still very far away from that investor psychology condition.


I do want to remind you that we could have a healthy adjustment in stock prices at any time. We usually have 5-10 percent pullbacks at least once a year. We are due for one of these soon. Further, I do feel we will have a bear market correction at some point in the coming 2-3 years. This is quite normal, and we should expect it. Remain optimistic short-term, but, remain realistic long-term. Enjoy the summer of 2019.