INSIGHTS FROM FIRST FOUNDATION

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The Week Ahead – A Tale of Two Decades

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”
A Tale of Two Cities by Charles Dickens

One of the most famous openings ever for a novel and one that also accurately describes the investment environment in 2019 and for this decade! It has been the best of times for domestic equity markets which hit new record highs while international/ emerging market equities languished. Investors got more access to information and data with the advent of technology which allowed them to be both wise and foolish with their decisions. Zombie companies have been allowed to stumble along as access to capital remains easy and all the while disruption has occurred in almost every single sector: fracking within energy, the Amazon effect within retail, and streaming video services becoming the way of digesting content . It’s hard to fathom all the progress and innovation that has occurred during this decade. If domestic equity markets hold their current levels, the S&P 500 will have annualized about a 14% return, even as the scars of the Great Financial Recession weighed on investors' psyches and record high cash balances sat on the sidelines. Conversely, if emerging market equities hold around their current levels to close the year, they will have annualized about a 4% return. A pretty staggering difference … until you look back at the decade of 2000–2009. The S&P 500 had an annualized return of -1.0% for that decade. Two bear markets in one decade will definitely do that. What did emerging market equities do for that decade? Up 10.1% per year on average! A tale of two decades for those equity markets.

In the week ahead, investors will once again be looking for signs of inflation as well as carefully monitoring Fed Chair Jerome Powell’s semi-annual report to Congress on the current health of the U.S. economy. Meanwhile, as trade optimism continues, a reminder of how binary the current market regime is: in their most recent member survey, the National Association for Business Economic Outlook asked, “What is the greatest UPSIDE risk to the U.S. economy through 2020, considering both probability of occurrence and potential impact?” The leading answer: trade policy. They were then asked, “What is the greatest DOWNSIDE risk to the U.S. economy through 2020, considering both probability of occurrence and potential impact?” The leading answer: trade policy!

Data deck for November 9–November 15:

Date

Indicator

Period

November 12

NFIB Small-Business Index

October

November 13

Consumer Price Index

October

November 13

Jerome Powell reports to Congress

----

November 13

Household Debt

Q13

November 13

Federal Budget

October

November 14

Initial Jobless Claims

----

November 14

Producer Price Index

October

November 15

Retail Sales

October

November 15

Empire State Index

November

November 15

Business Inventories

September

 

IMPORTANT DISCLOSURE INFORMATION    

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Andrew Chan, CAIA, Portfolio Strategist
About the Author
Andrew Chan, CAIA, Portfolio Strategist
Mr. Chan serves on the investment team and is responsible for conducting investment manager research and portfolio construction. As a member of the investment committee, he provides market commentary and investment insights. Mr. Chan’s responsibilities include overseeing client portfolios, calculating risk metrics, conducting the rebalancing of client portfolios, and evaluating the selection of new investment managers. With over 10 years of wealth management experience, Mr. Chan has played key roles across various aspects of investment and wealth management. Prior to joining First Foundation Advisors, Mr. Chan was most recently a portfolio manager at U.S. Trust where, in addition to his daily responsibilities, he served on numerous internal committees including the investment manager committee, the portfolio model committee, and the strategic technology committee. He also served on the in-house strategic consultant committee reporting directly to the President of U.S. Trust. Mr. Chan is a graduate of the Wharton School Executive Program on Investment Management and holds a Bachelor of Arts degree in Business Administration from the University of California, Riverside. He is a Chartered Alternative Investment Analyst (CAIA). Mr. Chan serves on the executive board for CAIA Los Angeles and is the Interim President for the association. Read more