Although stocks are up nicely so far in 2019, the S&P 500 is trading essentially flat with levels it was at in January 2018. This lackadaisical performance over the past 20 months comes despite modest growth in corporate earnings, and it obscures a sharp 20% correction that hit the market hard during last year’s 4th quarter.

When the broader stock market moves sideways for an extended period, it implies that investors are collectively indecisive about the future. And why wouldn’t they be in late 2019? The political environment in the U.S. is as tendentious as it has been in decades, the United States remains in a trade war with China, global economic growth is slowing, and we are approaching what could prove to be a uniquely combative presidential election year in 2020.

Anxious investors have responded by retreating from stocks and plowing into bonds. According to Morningstar, investors pulled $60 billion out of U.S. stock mutual funds and exchange-traded funds last quarter, the biggest such move since 2009. Meanwhile, bond funds and money-market funds took in $118 billion and $225 billion, respectively.

At risk of being pegged as the black sheep saying “excuse me” while moving against the traffic flow of the herd, this asset shift strikes us as irrational yet understandable.


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