Gill Capital Partners April 2019 Market Commentary

“Investment success accrues not so much to the brilliant as to the disciplined.”

William J. Bernstein, Financial Theorist

First Quarter 2019 Market Review

No, the chart below is not a personality test that has hidden meaning and multiple perspectives. It is simply a comparison of asset class returns from the fourth quarter of 2018 to the first quarter of 2019. The comparison is quite stunning, and shows nearly perfect opposite performance during the two back to back quarters. With most equity indices approaching the highs of September 2018, investors have once again learned the importance of discipline as an important component of an investment plan.

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As shown in the chart above, global equities were up between 10% and 15% in the first quarter. Investors found relief from a less aggressive Federal Reserve, which expressed its willingness to be patient about raising interest rates. This was a significant change from their position in the third quarter of 2018. Financial markets have interpreted their actions and message to mean that not only are they done raising rates for now, but that their next move may be to cut rates, a view that we do not share (more on this below). This has driven interest rates significantly lower once again, back to levels last seen in 2017. This has benefited bond prices (remember, yields down = prices up), which saw a nearly 3% return in the first quarter as measured by the Barclays Aggregate Bond Index. REITs (Real Estate Investment Trusts) were another beneficiary of lower interest rates, as lower interest rates make their yields more attractive to investors and provide a positive backdrop for real estate investing. REITs returned just over 16% in the first quarter. International and emerging market equities, as represented by the MSCI EAFE and the MSCI Emerging Markets indices, were up approximately 10% in the first quarter, slightly underperforming U.S. equities.

Looking Ahead – Earnings, Trade Wars & the Federal Reserve

As the pessimism of the fourth quarter has given way to optimism once again, we find equity indices pushing up against the highs from last year, and in many cases, all-time highs. We continue to focus on a few key areas that will be critical to the market direction over the next quarter and the remainder of the year.

Earnings: Earnings season has just started up again, and we are watching closely. Analysts are anticipating slower earnings growth this year as opposed to 2018, but are still expecting high single digit growth.

Our View: While earnings growth expectations have been reduced, we still expect solid growth. The lower analyst estimates and company guidance provide the opportunity for an upside surprise that could propel equities higher. Equity valuations are just slightly above average, so any positive surprise could provide for further upside in stocks. However, a stronger U.S. Dollar, combined with trade tensions, may continue to weigh on international sales. We have a largely “neutral” weighting to stocks currently as some uncertainty exists, but the fundamental growth story is still intact. 

Trade Wars: Trade delegations from the U.S. and China continue to work towards a potential trade deal, but details remain elusive.

Our View: It appears that progress is being made in trade negotiations between the U.S. and China, and that a trade deal may be in reach. Resolving the trade issue would likely be meaningful to international equities, particularly emerging market equities. This may be the single greatest wild card this year. A trade deal, if reached, will be positive across the board. We believe the chances of that are growing more likely. However, the devil is always in the details and it remains to be seen how meaningful a potential deal might be.

Federal Reserve & Interest Rates: The Federal Reserve has changed their tune dramatically since September, showing a willingness to be patient, and to not push rates too high too fast. Is their next move lower?

Our View: We do not think so. We do not yet see the case for the Federal Reserve to cut interest rates. We still see economic growth, albeit at a slower pace than last year, but it is still growth. We think the Federal Reserve will likely hold tight for the remainder of this year, with one caveat: inflation. If inflationary pressures finally begin to funnel through the system, then the Federal Reserve may be forced to start pushing rates higher again.


Earnings, trade wars, and the Federal Reserve will continue to have significant impacts on the capital markets for the foreseeable future. Any of these key variables have the ability to drive significant volatility in the markets (positive or negative). Our Investment Committee continues to watch these areas and others for important changes in the economic environment, and we will adjust our outlook if we believe it is warranted. In the meantime, we remain disciplined, and we have been using the recent equity rally to rebalance portfolios.

IRA & 401k Contribution Limits Have Changed

The IRS has recently unveiled new cost of living adjustments for retirement plans for 2019. For 2019, the IRS has increased the amount you can save in your retirement plans as follows:

·       401(k), 403(b), most 457 plans - The IRS has increased the annual contribution amount from $18,500 to $19,000. Employer annual contribution limits also increased from $55,000 to $56,000.

·       IRAs – The IRS has increased the annual contribution limit from $5,500 to $6,000. The income eligibility phase-out limits have also been adjusted higher; the amounts depend on the type of plan, and filing status.

Please reach out to us if we may be of assistance to help you maximize your retirement savings.

As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.

Sammi Moczo