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Investment Letter

2nd Quarter 2019

Climbing the wall of worry was an appropriate theme for the first half of 2019.  Investors shrugged off a global slowdown, tariff threats, declining earnings, geopolitical risks, and Presidential tweets. Despite a backdrop filled with fears and risks, the S&P 500 Index had its best first half of performance in 22 years with a total return of 18.54% and the index set five new all-time highs during the 2ndQuarter.  Domestic small company stocks, international stocks, and real estate stocks all delivered solid returns for 2019.  Even cash and fixed income benefited from the rising tide of positive performance.

Economic data indicated supportive domestic conditions as the expansion survived to become the longest in history (dating back to June 2009).  U.S. job growth has increased for 105 straight months, and the historic lows in the unemployment rate continued.  Household balance sheets continued to be strong, real income expanded, inflation remained low, and oil prices stabilized. 

Undeterred by the positive economic data, the Federal Reserve has set the stage for a reduction in the federal funds rate in 2019.  This will be the first decline in the federal funds since the rate increases started in December of 2015.  The pivot to a more accommodative and proactive approach is intended to sustain and boost the current economic expansion.  Expectations are for a July and October decrease of 0.25%.  

After evaluating the variables, we expect slow and steady economic growth, reduced interest rate pressures, low inflation, and supportive fundamentals to persist in 2019.  

We are still concerned about Brexit and the potential fallout.  The mismanaged negotiations and lack of confidence in the British political system forced Prime Minister (PM) Theresa May to resign.  Her replacement will be named in late July 2019, but the fast approaching deadline of October 31 leaves little time to negotiate a new agreement between European Union and United Kingdom officials.  Unfortunately, the no-deal exit scenario is looking more likely. 

After a two-month hiatus, trade talks with China are scheduled to begin again.  Having both sides back at the negotiating table is a positive sign for global economies.  However, the process is complicated, and a permanent deal will require time and a great deal of compromise.  We are hopeful further trade threat escalation will be avoided, but the lack of a resolution will add to uncertainties globally. 

We are mindful of the potential risks to the domestic and international economies.  Specifically, we are following the current issues: economic recession signals, international trade, global monetary policy, political instability, Brexit negotiations, immigration, currency volatility, energy price fluctuations, extreme weather events, natural disasters, cyberattacks, terrorism, and escalating geopolitical tensions.  The vigilant watch continues!

Our investment philosophy remains based on the fundamentals.  We believe it is time---not timing---that matters most.   History shows the successful long-term investor is patient, weathers market swings, and adheres to a disciplined investment process that includes a diversified asset allocation strategy based upon a tolerance for risk and need for return.

A financial check-up can help evaluate your financial health, highlight adjustments needed, and develop and implement a plan for success.  If you would like to discuss changes to your financial situation, schedule a meeting, or have any questions, please contact our office. 

In closing, I want to thank you for the opportunity of working with you and for your continued confidence and trust. 

Have a safe and enjoyable summer! 

With kindest personal regards, I am

Very truly yours, 



2019 Total Return Index Performance

Asset Class


2nd Qtr.



BofA/ML Three-Month U.S. Treasury



U.S. Bonds

Barclays Intermediate-Term Treasury



U.S. Large Co. Stocks

S&P 500



U.S. Small Co. Stocks

Russell 2000



International Stocks

MSCI EAFE (net div.)



Real Estate

DJ Select Real Estate Securities Total Return



Source: Morningstar


    U.S. Economic Data



3.1% Growth (annual rate) – 1st Quarter 2019



2.0% CPI (less food and energy) and 1.8% CPI (all items) over last 12-months ending May


Interest rates

No rate increase during the 2ndQuarter 2019.Federal Funds Rate range = 2.25 – 2.50%



Unemployment at 3.7%; 224,000 non-farm payroll jobs added in June; Labor force participation rate 62.9%; Notable job gains occurred in professional and business services, health care, and in transportation and warehousing.



Manufacturing activity continued to expand, and the overall economy grew for the 122thconsecutive month. The March ISM Manufacturing Index registered at 51.7%, a decrease of 2.7% from the May reading. Business strength continued to expand but June was the third straight month of slowing expansion.


Business Spending

Private non-residential investment continued to trend upward; New durable goods orders decreased 1.3% in May. The third decrease in last four months.


Corporate Profits

1st Quarter 2019 - U.S. corporate profits decreased by 2.6%. S&P 500 Earnings per share = $37.99



May 2019 data - New home sales decreased 7.8%; Existing home sales up 2.5%; Median sales price of existing homes rose 4.8%; Housing starts decreased 8.7%; Building permits increased slightly by 0.3%; MBA fixed 30-yr mortgage rates = 4.07% ending 06/28/2019


Consumer Spending

Disposable income remained strong; Consumer confidence declined in June after an increase in May; Retail and food services sales increased from previous month; Total vehicle sales rebounded during the 2ndquarter; Personal durable and nondurable spending slowed; Savings rate = 6.1%.



Oil price (West Texas Intermediate) = $58.20/bbl – 06/28/2019; Gas price (U.S. average regular unleaded) = $2.71/gal – 07/01/2019



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