Stocks continue their climb higher, trying to regain value lost during the carnage in December. Many believed the 2,600 level on the S&P 500 would provide a technical level that would face resistance, but investors plowed more money into stocks, finding new support for the bull market. Despite somewhat disappointing earnings figures rolling in from banks, retailers, and others, the markets are shrugging off fears of the slowdown, perhaps believing December’s fall was overdone. Further support continues to be provided from the Federal Reserve, which through a series of speeches and forward guidance have pronounced a more data-sensitive policy moving forward, backing off from previous aggressive posturing. Even the Brexit chaos engulfing the United Kingdom wasn’t enough to rattle the bulls.

The Brexit deal offered up by Theresa May was defeated handily this week, and markets surprisingly rose, perhaps with hopes that either Brexit would be delayed or another referendum held. The Prime Minister then faced a confidence vote to confirm her place as head of Parliament, which ultimately resulted in her remaining in power for now. The lingering question of how Brexit will end remains a large unknown that weighs heavily on European risk assets, with a diverse range of outcomes possible. Until more clarity is provided there, we remain wary of exposure to those markets.

The government shutdown continues in the US, and real effects in the economy are starting to be seen. Missed paychecks by government employees, contractors lost work, and sentiment gauges across the board have turned lower, as political brinkmanship comes to a head. GDP estimates will continue to be written down as the shutdown drags on, as lost Federal spending evaporates from the economy. There still appears to be no end in sight for now, with no one backing down.

In addition to headwinds being seen in US economic data, signs of slowing internationally are pouring in as well from China to Europe, providing fresh concerns to investors. China continues to incrementally add stimulus measures, from tax cuts to monetary policy easing, in an effort to prevent a hasty slowdown there, in the face of tariffs and a domestic slowdown. As seen in previous bouts of volatility and market turmoil, China’s centrally run economy has a good track record of being able to reverse declines when the political will is strong enough, and we continue to believe their support will be sufficient this time as well.

We are still waiting for bond yields to move higher before deploying additional capital to fixed income, as we believe rates will be on the rise from current levels. We are also closely monitoring equity markets and may rotate out of some more aggressive funds to defensive positions to be better prepared for a volatile year ahead. We continue to maintain a reasonable cash position, awaiting opportunities ahead.