Hilltop Market Update 2nd Quarter 2018

 

Hilltop Market Update, May 2018 Video Transcript

David Wise (DW): Hello, and welcome to Hilltop Wealth Advisors’ 2nd Quarterly Market Update and Outlook.  I’m David Wise and with me today is Ben Yeager.

Ben Yeager (BY): Thanks, Dave.  Glad to be here.

DW: So, our last update came in the middle of the stock market correction that we saw in February, where the S&P 500 actually dropped 10% from its peak and I think it is easy for us to forget that prior to that for 24 months straight, we had really solid smooth markets. The volatility that we’ve seen has been persistent and Chris and Rusty, I think, did a good job of highlighting that last time in our quarterly update.  We think that is going to remain present going forward and that’s coming particularly from some of the headlines that we’ve seen around trade wars and interest rate increases with the Fed and that’s having a pretty large role in performance year to date.  US stocks and bonds are actually down for the year, but international stocks have actually posted a small gain, particularly some outperformance coming in those small and mid-size companies internationally.

BY: And although we’ve seen weaker markets so far this year, we still feel that there is little probability of recession; we remain optimistic due to the fiscal stimulus, strong economic and earnings growth that we think will persist through the end of the year especially. As we look through the different asset classes, large cap stocks tend to be a little more expensive than other asset classes, mid cap stock valuations are much more reasonable and likely to benefit from the pro domestic policies, as well as tax cuts, and less likely to be affected by the geopolitical events and the trade wars, as you mentioned.  And then, small caps, while they do have better valuations right now, they may be a little risky to own this late in the economic cycle, but maybe there are a little cheaper valuations overseas.

DW: Yeah, I think we’re still seeing a pretty large gap between the price you’re paying for earnings here in the US versus what you get abroad, and so there is some opportunity there and plenty of room for growth.  And when we particularly look at Europe, as a whole they are coming into an economic expansionary phase and that’s really going to help performance going forward. As we look at emerging markets in particular, they have a consensus positive outlook as well and so we feel like those valuations are pretty attractive at this point in time.  Speaking of emerging markets and looking at that through a different lens, in debt there may be an opportunity there.  What do you think, Ben?

BY: Yeah, you know, we are getting a lot of questions about interest rates and a lot of them focus around the US and what is going on with the Fed here, but that may create an opportunity overseas as well.  Particularly what we’re seeing a lot of here in the US is just increased upward pressure on the interest rates due to Fed rate increases but also as the Fed winds down their balance sheet.  That’s causing the yield curve to flatten a little bit which is a trend to continue to watch.  And then, some areas that we’re looking at in particular are long term government bonds, there is a lot of interest rate sensitivity built in there and that’s something to keep an eye on. And, you know, just the fact that yields are so historically low at this point in time but many bonds are trading at a premium.  So, it may be important to continue to look at corporate bonds as opposed to US government bonds and also then overseas as you mentioned with emerging market debt and also developed markets.  The bonds there look to be a little more insulated from the rising rates here in the US.

DW: Yeah, I agree and I think that really the key going forward for the rest of 2018 is diversification both in the equity market but also in bond investments.  That’s going to play a big role going forward.  And so, to summarize where we are at this point in time, despite some of the volatility we’ve seen here recently, we are cautiously optimistic that we could see positive gains going forward for the rest of the year.

BY: Well, thank you all for joining us. We really appreciate the time and hope that you enjoyed it.  If you have any questions, please feel free to reach out to the team here at Hilltop. We’d love to talk to you further and answer any questions you may have.

DW: Thank you.

 

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