By: Deron McCoy, Chief Investment Officer, CFA®, CFP®, CAIA, AIF®
Sam Miller, Senior Investment Strategist, CFA®, CAIA®
I thought I’d write to share my Christmas list with you. Before I do that, however, since it’s only been a few weeks since Thanksgiving, let me first take a minute to express gratitude for a few things:
• I am most thankful for my loving wife and kids.
• I am also thankful for our overall good health—although it does seem harder to get out of bed on Thursday mornings after my Wednesday night basketball games.
• I am thankful that my friends and colleagues are safe and escaped the horrific wildfires.
• I am thankful that UCLA beat USC this year in football—that doesn’t happen too often nowadays.
• Though stocks have moved down recently and are near levels they were this time last year, I am thankful for the bull market high (S&P 500® at 2930) that was set on September 20, 2018.
• I am thankful to be born in the U.S. While we do have our flaws, we continue to lead the world on many fronts.
Speaking of the U.S., I am thankful that we have maintained an overweight to U.S. stocks versus their overseas counterparts since our firm’s inception. While U.S. stocks have regressed to December 2017 levels, they’re still up 78% (excluding dividends) since March 2000 (Source: Morningstar).
I am thankful for a host of other things, but I know you’re busy so let me get to my Christmas wish list. Besides some fresh powder on my upcoming ski trip, I’m personally pretty well set. But if you could make the following happen, it would go a long way for investors in 2019.
From my perspective, investors could use:
• Real GDP Growth: 2-3% growth would be great next year as we look to avoid recession.
Inflation: a little inflation is a good thing, but we don’t want too much. With oil prices now down to $50 and rent increases subsiding it looks like inflation next year should be reasonable.
• The Fed: now that interest rates are 2.25% (0% after inflation) the Fed should pause to assess the effects of their 3-year mission to normalize interest rates.
• Stocks: Stock prices are a function of two things: valuations and earnings growth. On the valuation front, due to the recent selloff in price (P) and the 2017-2018 increase in earnings (E), the price/earnings valuation metric (P/E) is now 15x. I would like to see 6-8% earnings growth next year.
• Peace on Earth: Granted Santa, this might be a bigger ask, but there are two individuals I am thinking about specifically. If you could do your best to have Premier Xi and President Trump reconcile their differences and make progress towards real reforms—trade peace would go a long way toward making 2019 a great year for everyone.
That’s it—continued expansion, low inflation, low interest rates, average valuations all combined with decent earnings growth. Hopefully this list isn’t too much to ask for!
Merry Christmas! And here’s to a great 2019!
The opinions expressed are those of the author and should not be construed as investment advice. Please consult a financial and tax professional for such advice. Securities offered through Royal Alliance Associates, Inc. member FINRA/SIPC. Investment advisory services offered through SEIA, LLC, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, (310) 712-2363. Royal Alliance Associates, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates, Inc.