Considering the current market volatility, the advisors at Egan, Berger & Weiner found this commentary from one of our portfolio teams - City National Rochdale – to be extremely insightful.
For the reasons delineated in this piece by Matthew Peron, chief investment officer at City National Rochdale, we still find the likelihood of a recession in the near-term to be low.
If we can be of any help, don’t hesitate to reach out to your advisor at EBW.
- Your Team at EBW
A Tweet Too Far? The Correction Enters a New Phase
As fundamental analysts, we focus on the expected path of the economy and earnings, taking into account the Fed, trade wars, and signs of global slowdown. We have done extensive analysis on these matters and feel comfortable with our reasoning. However, with the recent downturn, the market has passed a “normal” correction and has entered into a different phase, admittedly one we did not expect to see given the lack of fundamental deterioration.
We are now seeing the impact of politics and psychology. Never have so many normally cool-headed traders and clients called us with extreme frustration, and that frustration was precipitated by the fact that the president would consider firing the Federal Reserve chairman (which he did not actually declare publicly, but which reports have suggested he discussed).
These types of proclamations certainly fueled the selling last week, adding to the downward trend of U.S. markets versus global markets. Until the past few weeks, markets seemed to ignore his tweets. Not so much anymore. We stay anchored to our view of the fundamentals, which remain in growth mode, and the majority of our economic indicators (the City National Rochdale Speedometers) remain positive.
That said, the Speedometer for Geopolitical Risk, which includes the risk associated with
Until these factors settle, forecasting the market’s next move is difficult, and psychology can push it around more than fundamentals would dictate. We now have to resort to a different set of tools: those that monitor the mood of the markets to understand where it may go. One of our favorite “mood charts” graphs the percentage of S&P 500 stocks that are down over 20% versus the high yield credit spread. These two levels normally track one another and have only decoupled twice since the mid-2000s: in 2016 and now. This indicates that the equity market is more concerned
We do believe stock prices will move higher over time and that cooler heads will prevail. Our discipline, which has served us well over decades, keeps us focused on
Our portfolios are built to withstand volatility, and we are taking certain steps within our strategies to cushion the impact.
The Standard & Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.
Indices are unmanaged, and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of
Investment management services provided by City National Bank through its wholly owned subsidiary City National Rochdale, LLC, a registered investment advisor.