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Market Commentary

2nd Quarter 2019 Market Commentary


We still maintain our outlook for continued short-term volatility while our long-term bullish outlook has been tamed somewhat. My bullish outlook is not as strong as it was in the beginning of the year. At the beginning of the year I saw potential for a 20% rise in the markets based on our financial models and research. While I still believe we should see 3000 on the S&P 500 Index, I don't think the path is going to be as docile as it was in the first six months of the year. I believe market volatility will increase in the second half of the year. If the Federal Reserve lowers interest rates we could get a nice spike in the market followed by some volatility. Approaching a period of volatility could serve as a good opportunity to do a check on your portfolios and examine whether you're too aggressively positioned. If your time horizon and other variables indicate you should be allocated at a certain combination of equity and bonds, then this is a good time to verify that you're positioned appropriately for your goals and situation. There have been times in the last 25 years that it makes sense to take risk and invest very aggressively during a volatile time. I don't think this is one of those times.

Over the short-term, I think there's going to be more volatility due to the many potential market landmines that remain. There are still many international economic and political issues in addition to precarious trade deals being hashed out. Even though the U.S. and China trade deal has been particularly heated, I believe it will go in our favor once an agreement is finalized. America, along with the rest of the world, is encouraging China to grow their industries without stolen or unfairly obtained information. Many companies have complained of being coerced into, or required to, transfer intellectual property as part of doing business with China. And many countries have been speaking out to encourage China to change these practices.[1] When President Trump and General Xi do finally announce a deal, it could spur a spike in the markets. However, it will still take a few months after the announcement to complete and enact any agreement. China may also play with the idea that they should delay negotiations until the next president in hopes that that person would be easier to negotiate with. In the end, international pressures and China's economic dependence on trade will result in an advantageous deal for America.

There are many situations over the next few months which I think will test the markets and cause them to react in more volatile way than usual. I am still bullish over the next couple of years but over the long-term I don't think the next 10 years are going to be as fruitful as the last 10. This is probably the first time in the last 10 years that I'm not as sanguine as I've always been, both over the very short-term and over the very long-term. One ray of hope is emerging market equities and Europe, which have languished for most of the last decade, could now start to shine. In general, domestic equity markets have done better than equities of other areas of the globe but I think we may be on the cusp of that changing for the upcoming decade.

The ever-changing market landscape is why we utilize a three-legged investment methodology including quantitative models, fundamental research, and technical research to provide a comprehensive approach for our clients. We will continue to monitor the market variables in order to carefully navigate the path for our clients.

[1] Office of the U.S. Trade Representative

Shashi Mehrotra, Chartered Financial Analyst, Senior Vice President and Chief Investment Strategist. The opinions and predictions expressed herein are those of Shashi Mehrotra solely and not necessarily the opinions or expectations of Legend Advisory or any of its affiliates. Such opinions and predictions are as of June 19, 2019, and are subject to change at any time based on market and other conditions. This material includes forward-looking statements that are subject to certain risks and uncertainties. Actual results, performance or achievements may differ materially from those expressed or implied. No predictions or forecasts can be guaranteed.

Current market and economic data is as-of June 19, 2019. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.

Investing involves risk including the potential loss of principal. The opinions and material presented are provided for informational purposes only. No person or system can predict the market. Neither asset allocation nor diversification guarantee a profit or protect against or eliminate the risk of experiencing investment losses. All investments are subject to risk, including the risk of principal loss. There is no assurance that the investment goals and process described herein will consistently lead to successful investing.

The information shown does constitute investment advice, does not consider the investment objectives, risk tolerance or financial circumstances of any specific investor. The information provided is not intended to be a complete analysis of every material fact respecting any portfolio, security, or strategy and has been presented for educational purposes only. Data obtained from the sources cited is believed to be reliable and accurate at the time of compilation.

Past performance is no guarantee of future results.

The S&P 500 Index is a capitalization weighted index of 500 of the largest exchange-traded stocks in the U.S. from a broad range of Industries whose collective performance mirrors the overall stock market. Capitalization weighting results in the larger components (stocks) carrying a larger percentage weighting. The Equal Weighted S&P 500 consists of the same stocks but equally weighted and consequently may provide insight into the breadth/disparity of market performance. Investors cannot invest directly in an index.

There are some risks associated with investing in the stock markets: 1) Systematic risk - also known as market risk, this is the potential for the entire market to decline 2) Unsystematic risk - the risk that any one stock may go down in value, independent of the stock market as a whole. This also incorporates business risk and event risk and 3) Opportunity risk and liquidity risk.

Emerging markets are sought by investors for the prospect of high returns, as they often experience faster economic growth as measured by GDP. Investments in emerging markets come with much greater risk due to political instability, domestic infrastructure problems, currency volatility and limited equity opportunities (many large companies may still be “state-run” or private). Also, local stock exchanges may not offer liquid markets for outside investors. The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States.

The Federal Reserve System is composed of 12 regional Reserve banks which supervise state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

Securities offered through Lincoln Investment, Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Legend Advisory, Registered Investment Adviser. The Legend Advisory portfolios described are offered as part of a discretionary advisory service. Legend Advisory will assess an annual investment advisory fee based on the value of assets in your Legend Advisory account(s). Additional information regarding Legend Advisory's investment advisory fees can be found in the firm’s Form ADV 2A Appendix I, which is available upon request.

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