We had a rebound in Q1 as most broad markets around the globe gained over 10%. In fact, U.S. Stocks posted their best January in 30 years.[1] This comes after we saw some sharp declines just last quarter.

But what lies ahead? On March 22nd, the U.S. Treasury Yield curve inverted for the first time since 2007[2]. In other words, we are in a situation in which long term bonds have lower yields than similar short-term bonds. To many, this is taken as a sign of an impending recession.  But be careful reacting to news like this. It can be very difficult to predict the timing and severity of market movements based on these kinds of signals. We can look back to a yield curve inversion in February 2006. The S&P 500 posted positive results over the next 12-month period. The yield curve then returned to a positive slope in June 2007, prior to the market’s major decline in 2008-2009[3].

This is also a good time to remind you that at LFG expect to hedge our risk in any one country or specific event by building broadly diversified portfolios. Imagine how risky it can be to put too much weight into one company. Who could have predicted the crash of the Ethiopian Airline plane leading to the grounding of the Boeing 737? This tragic event and subsequent grounding led to a decline of over 17% for Boeing stock in a matter of weeks. Our portfolios provide exposure to over 45 countries and over 10,000 different stocks to help mitigate the impact of these unexpected and severe events. 

[1] Wall Street Journal, Jan 31,2019. https://www.wsj.com/articles/resilient-u-s-economy-fuels-january-stock-market-recovery-11548939600
[2] VanWert, Christopher. Seeking Alpha, Apr 4, 2019. https://seekingalpha.com/article/4252831-inverted-yield-curve-prepared
[3] Crill, Wes. Dimensional Fund Advisors, Aug 30, 2018.
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