Now is not the time to sell (or buy)
Last December I wrote in this column that we felt a rally was on its way. At that time we liked equity in the US and emerging Markets with a focus in Latin America on Brazil and Argentina.
Fast forward to the end of the first quarter and we find that most markets have gone up two digits or more: the S&P was up over 14% at the end of March and more than 16% since the December lows. But the US market is not alone. Europe has also experienced double digit market growth with only Japan failing to hit above 10% among its developed peers.
In emerging markets, China has risen more than 20%, Brazil 8% and Argentina 14%. Not to be outdone, commodities also rose with oil and copper prices up over 25% and 13% respectively. In short, many investable assets had a great time in the first quarter of this year.
So, you bought in December and now you’re trying to decide what to do after this big rally. My advice, let it run. Ride the wave, do not sell anything but do not buy more.
At Winston Capital we believe that the market is well balanced, a strange word given that the market is almost never balanced. However, after the rally we expect the market to stay around these levels for a while.
The next phase will be how the economic activity evolves, mainly in the US and China, and the Federal Reserve’s subsequent reaction to this data. There is no doubt about that GDP growth slowed in the last three quarters of 2018, from 4.1%, 3.4% to 2.2% in Q4, but we still believe we are not going to enter a recession. The question is, what will be the growth levels for Q1 and then Q2 this year?
With this data the Federal Reserve will make the call on whether to increase rates once or twice this year or not at all.
The good news is that no single data point will be absolute in determining the Fed’s response. Therefore, we will patiently observe each piece of data and try to decide what to do with the markets.
There is no hurry to buy or sell, there’s a long time to go between now and mid-summer during which time the market will decide which path to follow.
One of our main conclusions in December was that if we were lucky, 2019 would give us a good performance and maybe even give us back what 2018 took away.
As for other risks, there are always hidden problems in geopolitics or accidents, that’s why customers are not going to blame us. The end of the Mueller investigation removed another possible risk for markets. No one likes an environment where the president and/or his close collaborators are indicted or where the president is impeached.
So, for now, enjoy the rally, count your well-deserved beans and patiently wait for the summer heat to see what the economy has in store for our portfolios. And, if you want to get some extra juice, sell some volatility.