Quarterly Commentary

Market Update

July 16, 2018

Greetings,

Stock Market returns this year have been quite low and this is not what investors are used to. However, we are very pleased that our equity composite performance (3.01% gross of fees, 2.70% net of fees) has outperformed, both our primary index the MSCI (0.43%), as well as the S&P 500 (2.65%)*. I am particularly pleased that we have outperformed with all the strategic diversification that we always maintain even though this stock market continues to be dominated by the “FANG” stocks (Facebook, Amazon, Netflix, and Google). Those are now very expensive stocks.

The market’s pause is likely in reaction to the Fed’s new “tightening” policy, causing rising interest rates, but markets are likely even more concerned about the global discussions of tariffs and trade wars.

As pointed out by Kristalina Georgieva of the World Bank, “Global trade is essential to reducing global poverty.” As has been the case historically, some world economies grow faster than others. That likely will never change due to each country’s resources and leadership. Today, for example, the GDP growth for Asia this year is projected to be 6.3% versus the US projected GDP growth of only 2.9%. Click here to view 2018 Forecasted GDP Growth Rate.

Broad knowledge of the historical trade wars includes risks for both markets and economies. I am optimistic that this “news” is now so widely broadcast, that much of its impact is already accounted for in the market’s low, year-to-date return. 

It is ironic, but not surprising, that President Donald Trump, the “trade bully” but the “pro-business” President, is playing “chicken” with the Chinese. It’s not really surprising because much of the constituency of voters that he had during the election included “rust belt” voters who want job and competitive industries rebuilt in the US. Trump is also likely keenly aware of the projected 6+% Asian GDP growth versus the US approximately 3%.

We continue to be positive on the broad stock market, confident that interest rate increases will be contained as well as the trade war fears. The Chinese are already starting to adjust in light of tariff risks. Of course, in our stock analysis, we are very mindful of which sectors and stocks could be negatively impacted. Also, some opportunities may have been created, as European stocks have broadly corrected.

I encourage you to watch our second quarter webcast featuring me, Dr. Jim Kee, Christian Ledoux, and a guest appearance by Senior Analyst, Josh Taenzler. We expect that to be ready shortly and will send out via email and post to the STMM website. If you are not currently receiving the webcast and would like to, please let us know.

Also, click here to view our quarterly non-profit spotlight featuring our client, Texas Hill Country Memorial.  

Thank you for being our client.

Sincerely, 

Jeanie Wyatt, CFA
Chief Executive Officer & Chief Investment Officer

 

*Click here to view full disclosures 


Disclosures

This letter is not intended to constitute investment advice. Market and economic views are subject to change without notice and may be untimely when presented here. You are advised not to infer or assume that any securities, sectors, or markets described in this letter were or will be profitable. Securities identified in this letter do not represent all of the securities purchased, sold, or recommended for advisory clients, and you should not assume that the recommendations made in the future will be profitable or will equal the performance of the securities identified above. A complete list of all equity recommendations made by STMM during the past year is available upon request. Past performance is not indicative of future results. There is a risk of loss.

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