Client Portals

A Late Stage Market Melt-UP3 min read

Feb 6, 2019 - John Osbon ( 4 mins to read)

Without doubt the investment year is off to a great start. The stock market in the US is up 8%. January’s return is the best one since 1987. The way things are going we could see a repeat of 2013, one of the best diversified return years ever. What is going right and what could go wrong?

Why January is strong

January’s stock and bond market returns are strong due to fundamentals. Stock valuations are fairly cheap, earnings are increasing at 9%, dividends and buybacks are rising, taxes are lower and merger/acquisition activity is lively. Bonds are up because interest rates are a little too high. There is low inflation despite a tight labor market. The global economy is still deflating prices worldwide despite trade wars. After ten years there is no recession in sight and the Fed now seems set on slowing any rate rises or balance sheet shrinkage.

What could go wrong

The number of things that could go wrong for the investment world is shrinking. They are now mostly confined to horrible things happening to world leaders, like death or major illness. Of course, a major war, terror spree or other geopolitical crisis could disrupt markets. Any of these are possible, but none appear probable. In fact, the constant jawboning, negotiations, cancellations and re-establishments of trade and political order may lend some stability to the investment world. If we are arguing, we increase our chances of a solution or cease-fire.

Where things get interesting

Imagine a first half diversified portfolio return of 10%. We are only 3 percentage points from that right now. When a diversified portfolio hits that level by mid-year there is tremendous pressure to catch up for those who are sitting on the sidelines. I can easily see a high teens return this year: not as good as 2013 but one of the best years in this decade. Such returns are possible even with a Brexit and continued crackdowns on the big social media companies. A very good return year would be helped by just slightly higher oil prices.

I include emerging markets in the melt up category because they are cheap on an absolute and historical perspective.

Investing for 2020 and 2021

I have urged investors to take a three-year approach to investing in this late stage of cyclical economic growth. For those who can tolerate ups and downs a three-year timeline of investing can get them through the quarterly changes in the economy. Three years is important because a late stage advance is often very large, followed by a sudden decline as a recession hits.

Of course, there are some investors for whom a three-year approach is not useful. If you need the predictability of large and regular amounts of money, please take a more defensive stance. For example, 30% in Tbills. This hybrid approach reduces expected total returns, but also increases certainty. In this example, your overall return would be 10% if the diversified portfolio return is 15%. When you need cash flow, it makes sense to trade a higher return for steady capital preservation.

Take a look at our sample portfolio

If you would like to see a typical investment approach, send us an email. We start with four main portfolio approaches for Osbon clients. We work with a full range of clients from those who want maximum long term growth “forever” to retirees who only want income. What’s your situation and what does the “ideal” look like to you?

delivered to your inbox


This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”

“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.

Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.

Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.

This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.

While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.

Adviser does not endorse the statements, services or performance of any third-party vendor.

Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.

Any IPO alerts are purely informational and should not be construed as recommendations to invest.

Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.

Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.