Uncertainty is the word on the street these days as investors seem focused on geopolitical risks. Despite that underlying disquiet, bonds, stocks and alternative investments have all posted strong returns so far this year with the S&P 500 plus 21% and bond returns of 5-6%. This broad‐based positive performance masks the tension underneath the surface, which can explode into market‐moving trend reversals on little news. For example, recently two “winning” investment trends in 2019 experienced dramatic reversals when the relevant “story” changed:

  • Interest‐rate reversal: The yield on a 10‐year US Treasury Note had followed a long and steady decline from a peak of 3.24% in September 2018 to an eye‐popping low of 1.46% in late August—only to reverse course with a 44 basis point leap back upward to 1.90% in mid‐September.
  • Momentum stock reversal: At the same time, markets experienced a sharp three‐day reversal that temporarily drove momentum stocks out of favor as investors embraced value stocks instead. That short reversal closed the year-to‐date performance gap between the two styles from 12% to just 3%.

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What's critical to note here is neither of these reversals was triggered by new fundamental data about companies and their economic prospects. Rather, the driving force was an easing of the geopolitical uncertainty, as investors embraced a positive outlook about U.S.‐China trade. So, what's needed now?

We also have a short video featuring Johnson Financial Group's Jason Herried and Ron Alberts, that focuses on the:

  • Slowing economy
  • Fed rate cuts and negative yields
  • Early October decline in the stock market

Click here to watch the entire video

This information is for educational and illustrative purposes only and should not be used or construed as financial advice, an offer to sell, a solicitation, an offer to buy or a recommendation for any security. Opinions expressed herein are as of the date of this report and do not necessarily represent the views of Johnson Financial Group and/or its affiliates. Johnson Financial Group and/or its affiliates may issue reports or have opinions that are inconsistent with this report. Johnson Financial Group and/or its affiliates do not warrant the accuracy or completeness of information contained herein. Such information is subject to change without notice and is not intended to influence your investment decisions. Johnson Financial Group and/or its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared. Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses. Certain investments, like real estate, equity investments and fixed income securities, carry a certain degree of risk and may not be suitable for all investors. An investor could lose all or a substantial amount of his or her investment. Johnson Financial Group is the parent company of Johnson Bank, Johnson Wealth Inc. and Johnson Insurance Services LLC. NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE