2019 Q1 In Review - Derby and Derby, Ojai, CA

Derby & Derby, Inc.
Q1
2019
IN REVIEW

COMMENTARY
After the worst December since the Great Depression, and one of the worst quarters
in years for stocks, the S&P 500 had its best first quarter since 1998. In March we
celebrated the 10 year anniversary of the current bull market. Although the US economy
seemed to have hit a soft patch to start 2019 the fundamentals supporting economic
growth and corporate profits lead us to believe the bull market and this economic
expansion will continue in the near term.
While stocks rallied in the first quarter following the sharp December decline,
expectations for first quarter gross domestic product (GDP) appeared to dampen and
stand at about half the pace that it did last year. Seemingly slower GDP growth was
due mainly to sentiment involving the lingering effects from the government shutdown,
bad weather, U.S.-China trade tensions, and slower growth overseas—particularly in
Europe. The good news is these temporary headwinds are expected to clear, setting up a
potential pickup, albeit slower, in economic growth in the second quarter and beyond. In
addition, the U.S. consumer spending outlook remains solid, buoyed by continued gains
in employment and wages.
A U.S.-China trade deal, a persistent roadblock for business spending, could be finalized
in the coming weeks or months, which should help business confidence and spur capital
investment. At the same time, last year’s package of additional government spending of
roughly $300 billion is still giving the economy a boost. Together, these bode well for an
increase in business investment, which tends to lead to greater productivity and profit
growth, keys to extending this economic expansion.
It wasn’t that long ago that some economists and investors were seriously concerned
about US growth going negative for the first quarter. Now, it looks like real GDP is growing
at a much faster pace than projected furthering our conviction on the near-term health
of the economy. We think stocks will be higher at year end than they are now, despite
weathering potentially slower economic and earnings growth. We expect U.S. growth to
stabilize and slow slightly, and that inflation may creep higher as the risks subside.
Overall, we still see plenty of evidence that solid U.S. fundamentals are firmly planted
and a recession is unlikely on the near-term horizon. As this year progresses not only
do we anticipate earnings to be better than expectations, but we think economic data
will improve as well. Stay invested in an appropriate mix of stock and income oriented
investments because in the long run, that’s the way to create wealth.
S&P 500 AND HEADLINE NEWS
Strong December
jobs report
Partial US government shutdown ends
with three-week funding measure
S&P 500 closes at
2854.88 − Q4 high
Market News
Economic News
Headline News
2900
Surprisingly strong
January jobs report
FOMC Meeting:
No rate change
Real GDP increased an
annual rate of 2.2% in
Q4 2018 (third estimate)
S&P 500 Level
2775
2650
2525
2400
January 2019 February 2019 March 20 19
S&P 500 closes at
2447.89 − Q1 low
FOMC Meeting:
No rate change
Surprisingly
weak February
jobs report
U.K. PM May's
Brexit plan rejected
for third time
US Treasury yield curve (10Y-3M)
inverts for first time since 2007

ECONOMIC CHARTS & NOTES
2019
Q1IN REVIEW
CONSUMER SENTIMENT The preliminary University of Michigan
consumer sentiment reading was 96.9 in April, consistent with the same
month’s readings in the prior two years. Retail sales growth eased to 2.1% in
February following a 2.6% January increase.
EMPLOYMENT The U.S. unemployment rate came in at 3.8% in March
unchanged from the previous month and in-line with expectations. March
Nonfarm payrolls increased by 196 thousand in following February’s meager,
government shutdown-related increase of only 33K.
3Mo Moving Avg Yr/Yr %
Consumer Sentiment
Unemployment Rate
NonFarm Payroll
6%
100
6%
350
3Mo Moving Avg Yr/Yr %
5%
4%
3%
95
90
85
80
75
Consumer Sentiment
Unemployment Rate %
5%
4%
3%
280
210
140
70
Monthly Employment Change
2%
Jan '17
Jul '17
Jan '18
Jul '18
Jan ' 19
70
2%
Jan '16
Jul '16
Jan '17
Jul '17
Jan ' 18
Jul '18
Jan '19
0
JOB OPENINGS & HIRES Retail hiring remained robust with 767
thousand jobs added in February. Job openings data was also supportive of
a strong domestic labor market.
CONSUMER PRICE INDEX (CPI) Inflation in the U.S. is tame as
evidenced by the latest consumer price index (CPI) reading of 1.9%, the 4th
consecutive month of sub 2% inflation. Core inflation, exlcusive of food &
energy, is right at the Fed’s 2% long-term target.
Retail Openings
Retail Hires
CPI Less Food/Energy
CPI All
Amount in Thousands
1200
1000
800
600
400
200
Y/Y %
3.0%
2.5%
2.0%
1.5%
1.0%
0
Jan '18
Jul '18
Jan '19
0.5%
Jan '16
Jul '16
Jan '17
Jul '17
Jan '18
Jul '18
Jan '19

ECONOMIC CHARTS & NOTES
WAGES & SALERIES Average hourly earnings for all private U.S. employees
was up 3.2% in March slightly below the 3.4% consensus expectation. Wages &
salaries, which make up 70% of compensation costs, have shown remarkably
consistent growth near 3% in the past several quarters. The combination of higher
earnings and low inflation has enhanced the purchasing power of the consumer.
CONSUMER SPENDING Disposable personal income was higher in February
compared to January and up 3% year over year. Consumer spending bounced
back a bit in January after December’s disappointing 2% reading. Overall, U.S.
consumer data is indicative of a healthy, modestly growing economy.
4.0%
Employment Cost Index
Average Hourly Earnings
4.0%
3.5%
Consumption
Disposable Income
3.5%
3.0%
Quarterly Year-over-Year
3.0%
2.5%
2.0%
1.5%
1.0%
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
Year-over-year
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Jan '16
Jul '16
Jan '17
Jul '17
Jan '18
Jul '18
Jan '19
US LEADING INDEX The leading index for the United States as well as
other composite indices of leading indicators are used by many economists
and investors for predicting what is going to happen to the economy in the
near future.
Leading Index for the United States
GDP Gross Domestic Product (GDP) in the U.S. expanded 2.2% in the 4th
quarter of 2018. Economists expect 1st quarter economic growth to come in
around 1.7%. A moderation of growth is likely to follow 2018’s 3% growth in
2019 as the long, mild recovery continues into its 10th year.
GDP
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
'05 '06 '07
'08 '09
'10
'11
'12
'13
'14
'15
'16
'17
'18
'19
% Growth
5%
4%
3%
2%
1%
0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015
2016
2017
2018

CURRENT INVESTMENT THEMES
2019
Q1IN REVIEW
FINANCIALS FIXED INCOME BIOPHARMACEUTICALS
Tailwinds continue to support the case for
financials, including solid earnings growth, an
improved regulatory backdrop, increased M & A
activity, and benign credit conditions.
Income oriented investments performed well in
the first quarter, and we believe will continue to
benefit investors as the federal reserve has lowered
expectations for raising rates for the rest of the year.
Bio-tech is unique relative to other sectors in the
sense that it can offer investors the potential for
growth as well as provide a defensive posture
during periods of economic weakness.
CLOSING COMMENTS
The U.S economy remains
on solid footing although we
have entered a lower growth
phase of the economic cycle
as evidenced by 2018's Q4
2.2% growth. We are likely to
see lower growth than the 3%+
growth witnessed in 2018 as
we enter the 10th year of the
economic expansion. Corporate
fundamentals remain solid
and mild inflation as seen with as the 2% Consumer Price Index is supportive
of the Fed’s gradual approach to normalizing montetary policy. U.S. consumer
data is solid with the combination of steadily rising wages and low inflation
strengthening purchasing power. The employment market is particularly strong
with the unemployment rate holding at its lowest level in nearly five decades.
Economists are expecting 1st quarter economic growth to be around 1.7%.
Corporate earnings in the first quarter are expected to face tough year over year
comparisons due to last year’s tax cut impact and the stronger U.S. dollar.
All of us at Wagner Financial continue to thank you for your confidence and
trust. Please reach out to us with any questions or concerns. We appreicate the
privilege to serve you as a trusted wealth management firm, and look forward to
updating you with our 2019 Q2 in review.
Warm Regards,
Stephen H. Wagner, CFP ®
Chief Investment Officer

INVESTMENT
MANAGEMENT
PHILOSOPHY
The complex, ever-changing investment world of today
requires an investment process that is overseen by a team
of experienced investment professionals. Global capital
markets present investors with a host of challenges due to
the combination of an overwhelming amount of information
to analyze and the endless supply of conflicting opinions and
narratives surrounding financial markets. The time and expertise
required to perform in-depth investment research and to make
timely and informed portfolio management decisions requires
both a clear investment process and an experienced investment
team to implement the process.
An old adage states that there is accomplishment through
many advisors. We agree and embrace a variety of investment
perspectives through our investment committee. Our investment
philosophy is well grounded in global macro-economic analysis.
Investment ideas are carefully vetted through a process which
incorporates the diverse range of investment backgrounds
within our firm. This process of multifaceted analysis ensures
that only the strongest investment ideas survive. We are
committed to striking the right balance between risk and
return through managing global, multi-asset class investment
portfolios.
INDEPENDENCE &
CLIENT FOCUS
DIVERSIFICATION
TOP-DOWN, THEMATIC
APPROACH
PERFORMANCE WITH
LIQUIDITY
VARIED INVESTMENT
PERSPECTIVES
OPTIMIZATION OF
EXPENSES AND TAXES
INVESTMENT COMMITTEE
The Investment Committee meets formally each quarter, and more frequently if market conditions warrant, to discu
allocation and positioning of our portfolios. There’s an art to striking the right balance between risk and return, purs
have our interests aligned with our clients as we invest alongside them.​
VICTORIA DERBY BREEN
STEPHEN WAGNER
MARTHA LAFF
MARGARET MARAPAO
Investment Advisor &
Financial Planner
Investment Advisor,
CFP ® , CPFA
Investment Advisor,
ChFC ® , CLU ® , CRPC ®
Investment Advisor,
CFP ®
35+ Years Experience
30+ Years Experience
30+ Years Experience
10+ Years Experience

ASSESSMENT OF
GLOBAL
ECONOMIC &
INVESTMENT
ENVIRONMENT
THE INVESTMENT PROCESS
ASSESS & ANALYZE
THEMES
RESEARCH
INVESTMENT
VEHICLES TO FIND
EFFECTIVE
IMPLEMENTATION
Q1 INVESTMENT
COMMITTEE
GUEST SPEAKERS
2019
Q1IN REVIEW
Peter J. Sackmann CFA, Equity Market Review – Global equity portfolio
manager with a B.A. from Yale University and holds the Chartered Financial
Analyst designation.
IDENTIFY
OPPORTUNITIES
STRATEGIC ASSET
ALLOCATION -
Geographies, Sectors,
Capitalizations
INVESTMENT
SELECTION -
Open/Closed
End Funds, ETFs,
Stocks & Bonds
Erin Leighty CFA, Bond Market Review – Fixed income strategist focusing on
multi-sector fixed income strategies. Erin holds an MBA from the Wharton
School of the University of Pennsylvania and an undergraduate degree from
the University of Illinois.
ss the state of the global economy and capital markets and to assess the current asset
uing that symmetry is the core of our investment philosophy. We are fiduciaries and
THOUGHTFUL
INDEPENDENT
FIDUCIARIES
CHRISTOPHER WAGNER
Investment Advisor,
CPFA
10+ Years Experience
LAINE DICKISON
Investment Advisor &
Financial Planner
5+ Years Experience
Derby & Derby has been committed
to helping individuals, families, and
businesses grow, preserve, and distribute
wealth since 1979.

Derby & Derby, Inc.
603 West Ojai Avenue #C, Ojai, CA 93023
www.derbyandderby.com | (805) 646-3729
Data / statistics cited are provided by the Federal Reserve Bank of St. Louis.
The S&P 500 Index or the Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The
S&P 500 is a float-weighted index, meaning company market capitalizations are adjusted by the number of shares available for public trading. Investors
cannot invest directly in an index. Note: Investors cannot invest directly in an index. These unmanaged indices do not reflect management fees and
transaction costs that are associated with most investments.
Derby & Derby, Inc. is a Registered Investment Adviser. This material is solely for informational purposes. Advisory services are only offered to clients or
prospective clients where Derby & Derby, Inc. and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee
of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Derby & Derby, Inc. unless a client service
agreement is in place.