Market Insights

[Host] Welcome to the SunTrust Private Wealth Management Quarterly Podcast. In this series our Chief Market Strategist, Keith Lerner, provides an update on the Investment Advisory Group’s annual outlook report. Our theme for 2019 is Investing Amid a Carousel of Concerns: As One Worry Recedes, Another Comes to the Forefront. We invite you to listen as Keith discusses how the team’s key investment themes are playing out as we head into the second quarter, and what’s ahead in the coming months. Keith?

[Keith Lerner] As we left off in 2018, there were a number of uncertainties facing investors. This led to a sharp stock market decline, a selloff that our work suggested was way overdone. Confirmation of our analysis came shortly thereafter, and in the first quarter, risk assets snapped back sharply. Global stocks posted double-digit gains and had the best first quarter since 1998. Core bonds also posted solid returns as yields fell.

Several factors have aided the market rebound, including: A more dovish tone from the Federal Reserve, data suggesting that a US recession is not imminent, progress on trade, and a better earnings season than feared. However, the carousel of concerns continues to turn. So let’s get into an update on our key investment themes and positioning.

Our first theme for the global economy, moderating growth, remains intact. Global economic data has certainly been weak early in 2019, but growth expectations appear to be nearing a trough. Moreover, we expect global growth will stabilize as the effect of the enormous Chinese stimulus in the system kicks in and US data rebounds from the seasonally weak first quarter. We continue to see US recession risk as relatively low, and the economy should be supported by healthy consumer spending, which represents almost 70% of the economy, as well as solid business spending.

Moving to our equity market theme, a balancing act. The near-term risk reward is less compelling after the sharp rebound, and investors should expect bouts of turbulence. However, our expectation is for markets to move modestly higher later this year as global growth stabilizes.

Stock valuations have rebounded, but are well below the 2018 peak, and remain attractive relative to fixed income. Moreover, global profit trends appear to be at a positive inflection point.

Turning to our final theme, investors took advantage of the improved starting points in fixed income and yields have reset lower. Global yields have declined sharply on sluggish economic trends, easing monetary policy, and contained inflation trends. Interest rates now appear to have a limited down side, given our expectations for improved economic trends.

Given our current views on these investment themes, here are our portfolio position preferences. We have a modest equity tilt relative to fixed income. Within equities we maintain a U.S. bias, see opportunity in mid caps, which are relatively cheap, and see more up side in emerging markets relative to international developed markets. On fixed income we are primarily focused on high quality bonds, which should provide ballast during periods of market turbulence. However, we also see select opportunities in some higher yielding bonds for the increased income.

[Host] Thank you for listening and for allowing SunTrust Private Wealth Management to help prepare you for whatever life brings. Please reach out to your SunTrust advisor to learn more about how our investment themes may impact your portfolio. We look forward to keeping you informed on our views as the year unfolds.

The information and material presented in this podcast are for general information only and do not specifically address individual investment objectives, financial situations, or the particular needs of any specific person. Nothing in this material constitutes individual investment, legal or tax advice. Investments involve risk and an investor may incur profits or losses. Claims made in this podcast may not be representative of the experience of other clients and are not indicative of future performance or success.