By Rick Lear, Lear Investment Management
If you are looking for something interesting to talk about at an upcoming summer gathering, the headlines of the past week provided a smorgasbord of noteworthy topics...and gave the investing world much to figure out. Considering the following – in no particular order:
Don’t Fight the Fed - The Federal Reserve confirmed they are considering lowering interest rates. Yes, lowering. The S&P 500 regained the losses from May in anticipation of this dovish stance and the gains continued after the press conference.
The bears worried the Fed is late with the dovish language as the economy is heading for a recession while the bulls cheered the lower rates as equities become more attractive compared to fixed income and the idea of lowering borrowing costs for consumers and corporations. With our balanced stance, we were prepared and participated nicely in the rally.
The Other Side of the Pond - Speaking of central banks, Mario Draghi also struck a dovish tone in Europe and committed to supporting the economy with lower interest rates and bond purchases.
While the European economy has experienced a meaningful slowdown, the stock market in Europe has delivered solid returns in 2019 - almost keeping pace with the S&P 500. We find many interesting investments themes in European technology as a shift in innovation has been brewing and the US-China trade war creates opportunities.
Drone Drama - Tensions in the Middle East continued to rise as Iran shot down a US drone. There was no military response by the US. The price of oil climbed as concerns over an extended conflict look more like a reality.
The US response to the conflict in Iran has been economic sanctions, but we believe the diplomatic moves will not be enough and military conflict is a growing probability. This would cause the price of oil to rise further.
Climbing the Wall of Worry - The S&P 500 reached an all-time high in spite of the calls for recession. While economist call for a recession as the yield curve inverts and PMI manufacturing data slows, the market continues to grind higher reminding investors they are buying future earnings of companies and not economic data.
Select stocks remain attractive and we continue to be excited about strong secular themes and stocks trading at attractive valuations. We remain patient and balanced - not getting too excited in the highs and not too upset with declines. This is the nature of navigating market volatility...and to navigating life.
Total World Domination - Facebook released a white paper detailing the plans for a global crypto currency called Libra. The reality of an asset-backed crypto holds profound effects on the future of transactions and the banking system. With 1.7 billion people in the world unbanked, this form of currency can change the future of commerce. We are watching this development closely and encourage all to read the white paper to understand the logistics of this bold move.
Flip-Flops - President Trump tweeted he will meet with President Xi at the G-20 summit in Japan on June 28-29th . Not sure if this is fake news as the negotiations have been on-again-off-again since the trade war began a year ago.
Our stance is that a deal would be very difficult and further tariffs will be put on Chinese imports. The best outcome may be an agreement to extend talks and make the new tariffs (on the remaining $300 billion of Chinese goods) 10% as opposed to the 25% being threatened.
Further, much of the damage from the trade war may already be done and the world must adjust to the new reality of hostile US-China relations into the next decade.
In Conclusion - Last week was one of the most eventful weeks for capital market news of 2019. We anticipate the rest of the summer to continue to be action-packed. Thus, we remain balanced in the portfolio and focused on the earnings of the companies in the portfolio and their ability to weather a news storm.
Rick Lear is the Founder and Chief Investment Officer of Lear Investment Management. Lear is a pure investment firm founded in 2015 with focus on generating returns with measured risk. With over two decades of experience, his ability to identify global investment trends has resulted in superior outcomes for clients.
The Lear Global Vigilance Strategy is rated 5 Stars by Morningstar and ranks in the 5th percentile of managers in the Tactical Allocation category.
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