For many families and investors across America, the summer\nmonths are a time for vacations, having the kids and grandkids out of school, and\nless stress at work (hopefully). For the markets, the summer months tend to follow\na somewhat similar path with historically low volumes \u2013 though volatility generally\nlikes to stick around. <\/p>\n\n\n\n
This summer, there\u2019s a lot to think about as it relates to\nthe markets \u2013 particularly, how the trade wars may affect corporate earnings in\nQ2. But I\u2019d encourage investors to try and take a step back from the day-to-day\nstories and instead think on a higher level about portfolio themes,\nconstruction, and macro strategy. For that, I have 5 investment themes for you\nto consider this summer. <\/p>\n\n\n\n
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Focus on Macro Strategy with Our Just-Released Stock Market Report<\/a><\/strong><\/p>\n\n\n\n My recommendation for the summer is to focus on high level themes and make sure your portfolio is diversified. To help you do this, we are offering all readers a first look into our just-released Stock Market Outlook report. If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! ______________________________________________________________________________<\/p>\n\n\n\n 1. Value over Growth \u2013\n<\/strong>The runway left for U.S. economic growth is likely becoming more limited,\nin my view. Labor markets are tight and wage pressures are likely to result in\nrising inflation, which may trigger higher interest rates over time. Higher\ninterest rates tend to slow investment and spending, which can lead to slower\ngrowth rates. When the economy slows, non-cyclical companies tend to perform\nbetter than cyclical companies. Value stocks are often, but not always,\nassociated with non-cyclical companies as cyclical companies tend to trade at\nhigher valuation multiples in periods of an economic expansion.<\/p>\n\n\n\n However, there is one issue that might give growth stocks a\nlonger than expected boost over value stocks: With a slowdown in corporate\nearnings, the number of companies exhibiting strong earnings growth decreases<\/em>\nwhile the demand for these companies by investors increases<\/em>. Thus, it is\npossible for growth stocks to continue to perform well even in a period when\naggregate earnings growth is slowing due to an imbalance between supply and\ndemand. Generally speaking, an investor will perform better by focusing on\nrevisions to earnings estimates as opposed to trying to time when value will\noutperform growth. That being said, growth has had a long run, trees don\u2019t grow\nto the sky, and it makes sense to try to be a little more biased towards value\nstocks if possible, at this stage of the business cycle.<\/p>\n\n\n\n 2. Large Cap as a\nCategory \u2013 <\/strong>Similar to the argument above, large cap companies tend to have\nthe capital and cash needed to weather slowdowns, particularly if you seek out\nthe ones with high cash balances and stable earnings.One word of caution I\u2019d give investors, however, is to take a\nclose look at a company\u2019s sources of income. If a high percentage of sales are\nderived from global sales, and exposure to China is higher than average, you\nmay want to take that into consideration when building a thesis to own a\ncompany. <\/p>\n\n\n\n 3. U.S. over Foreign \u2013\n<\/strong>The United States has outperformed foreign in this cycle, for good reason \u2013\nhigher corporate earnings growth, better growth rates, the benefit of fiscal\nstimulus (tax cuts), and a comparable level of monetary policy stimulus. Even\nthough interest rates in the U.S. have ticked up while central banks globally\nremain accommodative, the Fed appears committed to holding rates steady for the\nbalance of 2019, which puts the U.S. back onto level playing ground with the\nrest of the world. As global economic growth rates slow, look to the U.S. for\nrelative stability.2<\/sup><\/p>\n\n\n\n 4. Municipals and Investment\nGrade Corporate Bonds \u2013 <\/strong>In the first\nquarter, municipal bonds rallied as interest rates declined. Supply remains\ntight and demand remains strong as tax reform legislation passed in 2017 has\nfurther provided support for the municipal bond market. In particular, the\ndeduction cap on state and local taxes has hurt high income earners in states\nsuch as California, New York and Connecticut, prompting demand for tax-free\nincome.3<\/sup> On the corporate side, there\u2019s quite a bit of reporting on\ncorporations being on a borrowing spree, which I agree is a risk at the margin.\nBut not all corporate debt is created equal, and high-quality borrowers almost\nalways pay better yields than offered in the risk-free market. <\/p>\n\n\n\n 5. Don\u2019t Fight\nVolatility \u2013 <\/strong>As mentioned in the beginning of this week\u2019s column, sometimes\nthe summer months feature heightened volatility on lower volumes. With the\ntrade war still bubbling and geopolitical tensions rising at the margin,\nvolatility has a breeding ground. I\u2019d encourage investors to think about the\nfirst four themes mentioned in this piece, check your portfolio to make sure\nyou\u2019re well diversified and positioned in accordance with your goals, and then\nget out and enjoy your summer. Our outlook for 2019 remains constructive, with\nwhat we see as little chance for a recession in the U.S. <\/p>\n\n\n\n Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n Focus on high level themes this summer and make sure your\nportfolio is diversified. Taking the time to review your holdings and\nconsidering how you\u2019re positioned in the current environment might take a day\nof work but can yield a summer of enjoyment. And that\u2019s worth your while.<\/p>\n\n\n\n
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This report will provide you with our forecasts along with additional factors to consider:<\/p>\n\n\n\n
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<\/a>IT’S FREE. Download the Just-Released Stock Market Outlook<\/a>1<\/a><\/sup><\/strong><\/p>\n\n\n\n