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2nd Quarter 2019 Market Update

30 October 2019

Clint McGarvin, CFA® | Portfolio Manager

Second Quarter Review

July marks the one hundred twenty-first month of the current economic expansion which started in June 2009 following the worst recession since the great depression in the 1930s. This expansion has waxed and waned and there have been numerous forecasts that an end to the expansion was imminent. Yet each time, the expansion gained enough steam to avoid falling back into recession. By most measures, this has been the weakest period of growth in the post-World War II era.

The current expansion has increased Gross Domestic Product (GDP) by just under 25% from June 2009 to March 2019[i] (as we do not yet have second-quarter GDP numbers). During the height of the financial crisis, the Fed and Treasury dropped interest rates to near zero and created numerous programs such as Troubled Asset Relief Program (TARP) as well as purchasing mortgage and Treasury securities, among others. This was all in an effort to lessen the severity of the recession, accelerate GDP as we emerged from the recession, and to keep the economy growing. While it is debatable whether these programs had any real effect, it is undeniable that the economy has been chugging along for the last one hundred twenty-one months.

Some internal aspects of the economy illustrate just how weak this recovery has been. For example, job growth has shown the same lackluster growth pattern as overall GDP. The unemployment rate is at 3.6%[ii] However, it has taken us the full period of the expansion to achieve this 50-year low unemployment rate.

Like GDP growth, the current expansion is plagued by the slowest pace of job creation since World War II. The current expansion has created jobs at an average annual rate of 1.4%[iii] per year, while job creation following the recession in 2001 saw jobs grow at 1.5%[iv] per year. Coming out of the recession, companies were reluctant to hire as demand did not bounce back as it did after previous recessions, and that lack of demand has persisted throughout the expansion. This low level of GDP and job growth did not hinder equity prices as the S&P 500® has had one of the best performances following any recession.

The only expansion producing better returns was in the 1990s and early 2000s, which produced cumulative returns of nearly 308% compared to the just over 307.5% from the beginning of March 2009, through June 2019. The strong equity market performance continued in the second quarter of this year as U.S. large-cap stocks, as represented by the S&P 500®, closed the quarter posting the best month of June since 1938 and the best first half of a year in 20-years. The solid returns so far this year are against the backdrop of a slowing global economy and the ongoing trade tensions between the U.S. and China and even for a brief period between the U.S. and Mexico.

At Frontier, we follow an active investment strategy and our domestic large-cap managers have contributed to the solid performance returned for our clients since the recession began in December 2007. We did not hold a constant allocation to stocks during the recession and we were reducing equities even before the recession started. Our active managers were also adjusting their portfolios to weather the economic turmoil. We have adjusted our process over the past ten years, but the foundation remains the same, a downside first focus that is forward-looking so that we not only take advantage of positive changes in the capital markets but also protect clients’ capital when our process signals increased stress. These are the fundamentals that we adhere to and strive to improve every day.

Additional Information
Past performance is no guarantee of future returns.  Performance discussed represents total returns that include income, realized and unrealized gains and losses. Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any types of securities and no investment decision should be made based solely on information provided herein. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. Before investing, consider investment objectives, risks, fees and expenses.
In reviewing any performance information presented, we recommend that you consider both the returns generated and the level of risk that was assumed in generating those results. We believe that performance information cannot be properly assessed without understanding the amount of risk that was taken in delivering that performance. We present performance information for short time periods because we understand that clients and potential Investors are interested in this information, however, we recommend against making any investment decisions based on short-term performance information. Performance should be considered in light of the market and economic conditions that prevailed at the time those results were generated.
Information provided herein reflects Frontier’s views as of the date of this newsletter and can change at any time without notice. Frontier obtained some of the information provided herein from third party sources believed to be reliable but it is not guaranteed and Frontier does not warrant or guarantee the accuracy or completeness of such information.
Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision.
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S&P 500®
Represents US large company stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ
[i] Federal Reserve Bank of St. Louis (2019), FRED Economic Data. Retrieved from
[ii] Federal Reserve Bank of St. Louis (2019), FRED Civilian Unemployment Rate. Retrieved from Federal Reserve Bank of St. Louis (2019), FRED Economic Data. Retrieved from
[iii] Federal Reserve Bank of St. Louis (2019), FRED Economic Data. Retrieved from
[iv] Yahoo! Finance (2019), S&P 500 Price Data. Retrieved from

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