Global Growth vs U.S. Consumer Spending
We’ve written many times about the current global growth slowdown, mostly coming from outside the U.S. With many S&P 500 companies having global sales, it’s virtually impossible for the S&P 500 and its companies to be immune from a slowdown around the world. Couple that with a highly volatile October for stocks, a FED that wants to raise rates into a global slowdown, the potential for a deepening trade war with the world’s second largest economy (China), and high U.S. corporate expectations meeting tough year-over-year comparisons and you have lots of reasons to be nervous. The irony is that’s a good thing. When you have nothing to worry about, be very worried.
Now is the time to be more flexible, more concentrated, more defensive, and more balanced. Unfortunately, most ETF’s and active equity funds in the typical Advisors portfolio do NOT have the ability to pivot and become more defensive. If you are an Advisor and have the time, experience, staff, and technology to make major shifts across the book of clients, congratulations, you have a superior team and process relative to the industry average. If you do not have the interest and ability to do it yourself, we urge you to seek out strategies that have significant flexibility including the ability to dial up or down risk exposures. Most strategies perform well in a bull market. Fewer perform well in choppy, volatile markets, and fewer still will perform well in economic slowdowns.
Beating the market and protecting capital requires maximum flexibility. Clients expect it, the market dictates it.
What do we see short-term?
In last weeks blog post I showed some charts and added some thoughts that hinted at a very near-term oversold rally. When the rubber-band gets stretched too far in either direction, there’s often a wicked snap-back. As I write this post, the market is getting soft into the weekend but we did have a very robust 2 day rally from the max oversold readings I showed. We have mid-term elections next Tuesday so there’s certainly every reason that short-term traders will not make major bets in either direction. I see de-risking today as we head into the weekend. Makes sense for short-term focused investors/traders. I expect some choppy trading for the next few days until we get more clarity on the elections.
How should investors be positioned now?
A month ago, my blog post highlighted how Consumer Staples, in particular, have historically been a beacon of stability and safety in a storm. While I believe the markets have further gains ahead into year-end, the aggregate of our data continues to suggest now is a time for portfolio balance via an overweight of high quality brands with stable, predictable earnings from defensive industries. There’s always tactical opportunities when markets get max oversold but until some of our data-points get more positive, now is NOT the time to be over your ski’s in equity risk.
What can drive more consistent returns and add protection when it’s prudent? If you ask every asset manager this question they will all have a different answer. Here’s how I would answer this very important question. SIMPLIFY:
- Short-term there’s some reason to be cautious but we have a major uncertainty being removed next Tuesday post-elections.
- We are beginning a seasonally strong period for stocks.
- The consumer and spending is still strong and stable.
- 2019 could be a tougher year for overly diversified equity portfolios – get more focused.
- Now is the time to assess WHAT you own and WHY you own it.
- Simple is better than complex inside a portfolio. Don’t get sucked into the “better
- Invest in what you know and what you spend your money on. It’s a wonderful hedge against your spending habits.
I’ll leave you with some great comments from famed Fidelity Magellan Portfolio Manager Peter Lynch’s book, “One up on Wall Street”. He ran the top performing active equity fund from 1977 to 1980 and averaged 29% per year over that period. His philosophy was simple and very consistent with how we manage client portfolios:
Stop listening to professionals! Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better, than the average Wall Street expert…If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them…It’s impossible to be a credit card-carrying American consumer without having done a lot of fundamental analysis on dozens of companies.
Peter Lynch – One Up On Wall Street
This information was produced by and the opinions expressed are those of Accuvest as of the date of writing and are subject to change. Any research is based on Accuvest proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however Accuvest does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios of clients of Accuvest, and do not represent all of the securities purchased, sold or recommended for client accounts.