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The Markets This Week

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by Connor Darrell CFA, Assistant Vice President – Head of Investments
The major global equity indexes posted their worst week of the year as investor sentiment was impacted by further evidence of a slowdown in global economic activity. In the U.S., the monthly jobs number came in far lower than expected, though there is reason to believe that the report was heavily influenced by weather-related factors. In Europe, the European Central Bank (ECB) announced that it intended to inject further liquidity into the European banking system in an effort to curtail the negative impact that trade tensions and geopolitical concerns have had on economic growth. Lastly, the Chinese government seemed to unsettle markets when it announced a new fiscal stimulus program aimed at increasing activity in its slowing manufacturing sector. Bonds climbed higher as rates fell amid the flurry of new economic data and policy developments. 

The Pendulum Continues to Swing
At the beginning of December, the S&P 500 was trading right around the 2,790 level before negative sentiment drove the index to the brink of bear market territory. After a sharp reversal around Christmas and one of the strongest starts to a year in decades, the turmoil from December felt like a faded memory. But last week brought with it five consecutive days of negative returns for equity markets, leaving many investors wondering where we go from here 

It’s important to remember that market performance tends to track earnings over the long-term, and earnings are largely driven by economic fundamentals. The fact is that economic fundamentals simply do not reverse course so significantly in such a short period of time. As such, it makes sense to inquire as to whether the market was too pessimistic during December or too optimistic during January and February? The answer is probably yes on both fronts.

Given the heightened uncertainty and slower growth rates being observed around the globe (as compared to 2017 levels), the current fair value for the market is likely somewhere in between December’s bottom and March’s peak. The market seems to have attributed much of the recent slowdown in China to continuing trade tensions with the United States, while in Europe, the uncertainty of the Brexit situation continues to impact business investment and economic activity. Clarity on both of these issues is likely to be provided before the end of 2019, and this may allow economic growth to reaccelerate by the second half of the year. But until then, the pendulum may keep swinging back and forth with markets stuck in a bounded trading range. For investors, this is a period where patience and discipline will be essential. We continue to favor a disciplined approach to tactical rebalancing rather than attempting to time entry and exit points.

VNFA In The Community

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As part of our Holiday Hope Chests collection, we are seeking gifts and complete gift boxes that have boy, girl and gender neutral themes. If you want to participate, please see the Gift Suggestion Sheet for ideas of items that are appropriate for each age group that the Volunteer Center has requests to fulfill.

All items must fit in a standard shoe box. You can deliver your items and complete hope chests to our Bethlehem office any time before November 30.

Read more about this program and contact us, or visit our Bethlehem office, if you are interested in participating.

Stay tuned for details about our VNFA Wrapping Party!

FOR OUR CLIENTS

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Last year we launched a web pay option for tax preparation billing. We are pleased to announce that this convenient online payment system is now available for all of your Valley National Financial Advisors invoices.*

It is as easy as 1, 2, 3 to view your invoice and pay it with a credit card or direct from a bank account via QuickBooks. Our website has a quick reference guide so you know what to expect: http://www.valleynationalgroup.com/webpay

Ask your service team about all of our secure and simple payment options. Please use the method of payment that is most convenient for you – online, in person, over the phone, by mail.

*Asset Management fees are automatically deducted from accounts and are not included in invoices payable online.

A Tale of Two Styles: Value vs. Growth

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by Connor Darrell, Head of Investments

You often hear the terms “value” and “growth” thrown about when discussions of equity markets are taking place. We thought it might be helpful to discuss some of the differences between the two terms and the trends that have been observed in recent years.

Value and growth are merely two different investing styles that focus on different factors in deciding which stocks to buy. Value investors are typically more focused on stocks that are considered relatively inexpensive in terms of the price of earnings or assets on the company’s balance sheet. Growth investors tend to focus on future earnings growth prospects rather than the price paid for a security and will be willing to pay more for a company that has a perceived advantage in this regard. Often, a stock will not fit perfectly into one category, and will exhibit characteristics of both styles.

Throughout history, the two approaches have gone in and out of favor. Value stocks have outperformed in some periods, and growth stocks have outperformed in others. What is interesting however, is that the divergence between value and growth has seemingly become more pronounced during the course of the current bull market. Since the market bottomed in early 2009, growth stocks (as measured by the Morningstar US Growth Index) have returned an annualized 19.25%, while value stocks (as measured by the Morningstar US Value Index) have returned an annualized 15.99%.  =While this may not seem like a large difference at first glance, over 9+ years, this amounts to approximately $115,340 of additional appreciation on an initial $100,000 investment; a staggering number.

The reasons behind the difference can be explained by the rise of widely held “glamour” stocks in the IT and Consumer Discretionary sectors, which are dominated by social media, search engine, and online retail companies, and are massive components of most growth indices. However, before investors rush to purchase these stocks, we caution that over the long-term the playing field tends to level itself out. Over the last 20 years, the Morningstar US Core Index, which maintains a blended portfolio (containing both value and growth stocks) has outperformed both the value and growth style indexes.

As asset allocators, we can and should use all the data available to us to try and tilt a portfolio toward styles and sectors that are likely to enhance returns, but to jump into one style or sector with both feet can be a perilous proposition. When it comes to investing, a balanced, stable approach tends to win out in the end.