April Market Note

April 8, 2019

This has to be one of the most hated bull markets in history. Investors have been predicting its demise since the initial rally off the lows in 2009 only to be proven wrong again and again. Not to say it’s been an uninterrupted rise off the lows of the financial crisis. There have been a number of instances where the markets have paused or in one case came to the brink of a bear market before stabilizing and moving higher, but how much longer can this continue?

After a brutal 4th quarter, the markets have rebounded erasing the majority of the losses inflicted on investors. To say that volatility has increased would be a misnomer. In 2017 the markets were highly correlated to the upside. In 2018 the markets were highly correlated to the downside. To date, the markets have once more reversed course with most major asset classes rallying. You have to forgive investors if they seem a bit confused by the constant course reversals.

The adage is bull markets don’t die of old age, but we would suggest they at least become a bit fragile. This bull market has been built on the back of accommodative monetary policy and if we needed a reminder it came in the 4th quarter of last year when the Federal Reserve reversed course and went from “auto pilot”, reducing the balance sheet and increasing rates in a methodical fashion to “patience” or stated more simply, “we’re going to hold off and see what happens next”. To investors this meant monetary policy would go from being restrictive to supportive of risk assets and therefore provided the impetus for markets to rally back to within shouting distance of all-time highs.

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