Quarterly Investment Note
October 6, 2019
The Summer Didn’t Change Anything
Despite recently disappointing data for the manufacturing sector, the economy over all remains strong. The latest retail sales were stronger than anticipated with an unexpected surge in auto sales too. This latest proof of consumer confidence and financial well-being was one of the only surprises from a summer that unfolded much as expected. Trade talks, Brexit, and interest rate policy dominated the headlines and periodically buffeted the markets with swift surges up or down.
As each day passed, there was a new nuance to these issues. The European Central Bank reduced rates for the first time, the yield curve inverted from the 2-year Treasury bond in addition to already inverting from the 3 mos., and most recently, oil supplies were just disrupted in Saudi Arabia. None of these developments, though, changed the central issues overshadowing our economy nor improved the odds of resolution.
We expect little to surprise into the end of the year, either. The federal reserve is widely expected to continue to reduce interest rates, and this may or may not be meaningful to an economy that will continue to grow under the uncertainty of trade policy. There may be progress in trade negotiations with China, but it is more likely that our current leadership is carefully timing an expected full agreement for maximum benefit in the upcoming election cycle.
As our outlook hasn’t changed, neither has our portfolio strategy. Equity investments have had a strong year so far, exceeding the broader market due to a mix of sector and security selection. We will continue to take profits when we see fully priced investments, and we will look for investment opportunities that favor a slowing economy out in the future.