To Inform: 

Last night we hosted our quarterly Portfolios and Pints event. A crowd of more than 50 enjoyed great food and drinks, fun fellowship, and hopefully took a few nuggets away as The Joseph Group Chief Investment Officer Alex Durbin and I pulled questions from the “Lucky” hat. Why was the hat “Lucky” you may ask?  Well, not only did it say “Lucky” on the front to evoke the spirit of the upcoming St. Patrick’s Day, but it also seemed to give Alex all the hard questions….

Let’s look at a few of the questions asked last night.

Will this conflict with Iran lead to a recession?

Clearly, the war and its market impact was a big topic last night. The main transition mechanism from the war with Iran to the global economy is the price of oil. As you can see from the chart below, West Texas Intermediate crude oil prices have jumped from around $65 per barrel at the end of February to over $95 per barrel on Thursday. History shows the market can handle and absorb short term oil price spikes. However, the longer the conflict goes on, and the longer oil prices remain high, the greater the risk that consumers and businesses adjust their behaviors and pricing in a negative way.

Bottom line – we believe right now we are not seeing recessionary signs, but the risk of recession rises the longer oil prices remain high.

Source: oilpricechart.com

What does the recent news in markets mean for International Stocks?

Heading into the conflict with Iran, international stocks were the clear market leaders with the MSCI EAFE Index of foreign stocks up over 10% year to date through the end of February compared to only +0.7% for the S&P 500 through the same period. With the war, foreign stocks are still the year-to-date leaders, but the magnitude of leadership has shrunk as foreign stocks have been hit the hardest. Why? The table below gives some clues and the simple answer is again oil. Countries such as Canada and the United States are effectively energy independent as they produce more oil than they consume. However, countries in Europe and particularly in Asia have a much heavier reliance on oil imports. Japan has to import 96.7% of the oil its population consumes!

Bottom line – while we still like the long-term investment prospects of foreign stocks, we are cognizant in the short term they are much more vulnerable to the impact of rising oil prices.

Source: Strategas

What good news is there out there?

I love this question! Here are a couple of points. First, corporate profit margins remain at record highs. High corporate profit margins help support market valuations and, in our opinion, it’s tough to paint a recessionary picture when corporations are making record profits.

Source: Strategas

Second, thanks to recent tax legislation, expectations are for a huge aggregate increase in tax refunds this season. Those tax refunds should be a jolt of positive stimulus for the economy as most individuals spend those refunds.

Last night was a lot of fun and it was an opportunity to gain knowledge and grow community. We invite you to come to upcoming Joseph Group events and please bring a friend!

Writtn by Travis Upton, Partner and Chief Executive Officer