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Source: Bloomberg, Avalon Investment & Advisory as of May 24, 2019
Chart of the Week: As trade tensions have risen, risk assets have declined with the S&P 500 now about 4% off its highs. Investor sentiment has swung from overly optimistic at the end of April to very pessimistic currently. Interestingly, the current rebound off the 2018 Christmas Eve lows has faded from being one of the strongest to exactly equal to the average rebounds for 20% declines not accompanied by a recession (see chart). The good news is that if the current rebound continues to follow this average outcome then it would gain an additional 7% by the end of the year. Historically, only one of the fourteen post-WW2 rebounds ended lower from this point with median additional return of almost 13%. The bad news is that there are no U.S. and China trade talks scheduled and the heated rhetoric on both sides makes it unlikely that any agreement can be reached before Trump and Xi meet in late June at the G-20. Financial market volatility seems likely to remain elevated, but Avalon does not expect as severe a reaction from the S&P 500 as we saw at the end of 2018. The difference is that the U.S. Federal Reserve is not discussing rate hikes like in 2018 and is holding steady while monitoring the downside risks. Futures markets have priced in an almost 80% chance of a Fed rate cut, but that far overestimates the probability in our view. Avalon still expects a trade deal to eventually be reached and no recession in 2019 even if the trade negotiations drag on and additional tariffs are implemented.
WEEK IN PREVIEW
WEEK IN REVIEW
Phan Phan Duong, Senior Analyst
Henry J. Lartigue, CFA, Managing Partner
Samuel E. Rines, Chief Economist
Bill Stone, CFA, CMT, Chief Investment Officer
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This report is furnished for the use of Avalon Investment & Advisory and its clients and does not constitute the provision of investment or economic advice to any person, nor the recommendation of any security. Persons reading this report should consult with their investment advisor regarding the appropriateness of investing in any securities or adopting any investment strategies discussed or recommended in this report. Statements regarding future prospects may not be realized. The information contained in this report was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy, timeliness, or completeness by Avalon Investment & Advisory. The information contained in this report and the opinions expressed herein are subject to change without notice. Past performance is no guarantee of future results. Neither the information in this report nor any opinion expressed herein constitutes an offer to buy or sell, nor a recommendation to buy or sell, any security or financial instrument. Avalon Investment & Advisory does not provide legal, tax, or accounting advice. ©2019 Avalon Investment & Advisory. All rights reserved.
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News | Press
Avalon Advisors, LLC Announces new Co-Chief Investment Officer
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