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Third Quarter 2018 Commentary

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Staying the Course and Enjoying the Ride

The third quarter proved to be good for most U.S. equities, and investors welcomed a more gentle summer. Gradually increasing U.S. interest rates are tightening financial conditions around the world. The Fed has indicated that they will be raising rates for the foreseeable future, and this will lend itself to a stronger U.S. dollar. All this having been said, we believe that the markets will push through decent returns in equities through the remainder of 2018.

We believe as we move into the fourth quarter of this year, it is okay to take some capital gains. Politics will be changing our footing with the midterm elections, and we always have the risks of the emerging markets or another country’s currency ills resounding through our markets. This is all to simply say that it is getting later in the game, and we expect volatility and probability of market corrections to increase.

The underpinnings of U.S. growth are still strong with the tax cuts and low unemployment, and we still prefer the U.S. to other markets. Now is a good time to check our portfolio resilience and be comfortable with our weightings in regard to risk tolerances. Finally, we think year end should provide a good atmosphere for retailers and the holidays, and we see a reasonable fourth quarter ahead. This is a good time to stick to our investment plan, take some gains, and stay in short maturities in our fixed income.

Happy Fall,

Zandy

Second Quarter 2018 Commentary

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Trump Bump Down to a Nudge?

The first half of 2018 has been anything but boring, although the markets have yielded the investor very little. Literally, with all the wild moves of several hundred points in a day, the first half has returned just 2.65% for the S&P 500, while the Dow Jones Industrial Average was down 0.73%.

The big winners of the first two quarters would be oil stocks, with technology a possible second, again due to the F.A.N.G. stocks (Facebook, Apple, Netflix, and Google). By comparison, the small and mid-cap stocks have enjoyed a much more positive move for the same time period. The reason for this divergence is that the tax cuts have proven more helpful to the little guy, and most of these companies are not exposed to trade worries. Conversely, the big losers were the industrials and the banks.

The reasoning is simple, the industrials have exposure to China and oversees currency risk, as well as trade war risk. The financials in general came down in the first half of the year due to a flattening yield curve. The thinking is that if the spread decreases between the banks’ borrowing rate and the consumer loan rate, the banks will be hurt by the flattening yield curve. Finally, the yield curve flattening is one step away from it actually inverting. An inverted yield curve has often been the signal of a shortly ensuing recession.

Having hopefully dispensed with all the bad news, here is the good news: first, unemployment is approximately 3.8% which is a historic low. Interest rates have not skyrocketed, and our Fed has taken measures to insure against this occurrence by raising short term rates. Companies are reporting excellent year over year operating results, and the economy is chugging along. The consumer has been doing their part, and we perceive ourselves to be more secure today from domestic terror related events.

With all of this being said, the second half of the year seems to be setting up in a similar fashion to the first half. Some catalysts for future volatility might be the mid-term elections in November, with the appointment of a Trump appointed Supreme Court justice hanging in the balance. Additionally, some of the bad actors, such as China, Russia, and North Korea still present unknowns in relation to NATO and trade talks.

We find ourselves asking, “what to do now?” For the most part, we believe very little. If you are happy with your allocation to stocks and cash, stay put. If you have more cash to put to work, we suggest averaging into the markets at this point. In other words, now is a time to be very slow to act. If we get a decent pullback in the Fall, we might take a look at some of our quality favorites. Otherwise, our suggestion is to stay invested and try to turn off CNBC as much as possible.

Once we get the sand out of our shoes in September, we will begin to see the formation of a more engaged investment landscape.

A.G. Campbell Advisory, LLC

1st Quarter 2018 Commentary

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Rollercoaster Rides Are Scary BUT They Do Stop

I have met so many people in the financial industry, outside of the industry, investors, and money managers, and they all say the same thing: “this market is exhausting.” If we look at 2017 as one of the least volatile years on record, 2018 has begun as its’ bitter cousin. 2016-2017 will be seen as the Trump party, and now we must come back to earth and deal with reality. Our forecast is for muted returns this year verses last year and headwind risks are likely trade wars and higher interest rates. Eventually, the market will digest these items.

The 1st quarter volatility of 2018 came with a vengeance. The January to February selloff took most major averages down in the double digit range. At the peak, the drop was over 10%. Most of what we all are experiencing has little to nothing to do with the true value of the companies in the market. The stock market is reacting to the highly unpredictable style of the president. During this quarter, the market has all but ignored the strong earnings growth momentum, tax cuts and repatriation. These bullish facts will become more apparent during the first quarter earnings report season. We still think it make sense to overweight financials and selective technology. In general, we think market fundamentals are strong and on pace. At this point, we favor value companies over growth, and would also use this year to take some gains.

In the first quarter, the Dow was down 2.5% which ended to its’ nine-quarter gain streak. The S&P 500 was down 1.2% which also broke its’ rally record. In divergence, the NASDAQ was up 2.3% and the Russell was down 0.4%. Overall, the New Year came in with the winds of worry. We believe that some of this volatility will settle down as the geopolitical risks abate. While it continues, we suggest that our investors adopt the same attitude as Warren Buffet. Mr. Buffet believes that most of the political and other noise that we hear that stirs up market volatility needs to be tuned out. He thinks that market volatility causes more people to unintentionally harm themselves than anything else. We tend to agree.

Warmest Regards,

Zandy Campbell

Fourth Quarter 2017 Commentary & 2018 Outlook

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2017 Performance and 2018 Outlook:

2017

·         The Trump Bump accounted for a 6.5 trillion dollar increase in the U.S. economy, low interest rates, and more jobs created by any President in recent memory.

·         The S&P 500 closed up the year over 21% in positive returns and the only asset class to be negative was commodities.

·         The Tax Deal was completed in late 2017 and will take effect in 2018 and should be a net positive for the markets. Everything from lower corporate taxes to a one time low tax on repatriation of large corporate profits held overseas could add quite a kick to our New Year.

·         Foreign stocks and emerging markets were a good place to be in 2017

·         Geopolitical tensions began to ease at year end with increasing domestic political tension.

2018

·         Increased volatility due to extended bull market. Speculators will aggressively trade the dollar, bitcoin, and the VIX index itself. Everyone will be looking to call an end to this long bull market.

·         For reference purposes, the longest bull market in history was from 1990 to 2000 and extend over 113 months. Today, this bull market is standing at 105 months.

·         We advise 15-20% cash taken from high flyers and equity profits. In the equity space, we generally feel that clients should ride out their holdings. Options, short term bonds, and cash can be used to minimize volatility; therefore, the theme is to stay “long” quality equity and not panic, no matter what the volatility.

·         The biggest risk we have faced over the past 30 years is time spent “out “of the market and an inability to return to it.

·         Our outlook is for 2018 to be a year of higher volatility, an increase in domestic political fighting with the upcoming midterm elections, and a general increase in corporate profits. Stocks are still going to be “the place to be,” provided that investors can handle the natural corrections. We also favor international investments in that there are still values to be enjoyed in those markets. Finally, we are net bearish on bonds of all types. We would prefer tax free to taxable in general and would stay away from any type of junk. Short term municipals would be our alternative to treasuries or cash.

·         For those interested in which companies will benefit the most from the tax deal, we would suggest the industrials, consumer staples and telecom. These companies were taxed at generally the highest rates.  Most of the benefit has already been derived by the Energy and Technology sectors, but the actual implementation will still be felt in their balance sheets. Finally, consumers and small business will be net winners.

·         In summary, this is a year when knowing your risk tolerance and asset allocation will be as important as any.

Happy New Year!!!!

Second Quarter 2017 Commentary

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2nd Quarter 2017 Investment Commentary

The United States economy looks better than it has in a long time. The U.S. GDP was somewhat slow in the first quarter at 1.2%. We think the second quarter growth might be closer to 2.5%. Generally speaking, unemployment has dropped to its lowest levels in 17 years, but we are not naïve to the fact that there are many who are still under-employed. Additionally, there are those people who simply are not qualified or trained for today’s labor force. Stocks have hit their highs this year and have outperformed bonds for six years in a row. The first half of the year was dominated by lower price/earnings multiples and increased market volatility.

The political songs of excitement of the first quarter have all but faded to the monotony of Washington’s log jam that is endless and uninspiring. Can the Republicans get “repeal and replace” done? Few think so. Can the Republicans get anything they promised done? We’ll see. The main streets of America need some healthcare, tax, and regulation relief and so do our companies. For the best possible outcome, there will have to be true bipartisanship; therefore, count on something in between.

Finally, on a positive note, the corporate earnings train of the 2nd quarter looks promising. The forecasts or consensus is for year over year earnings to rise at the 8% level for the second quarter and 11% for the year. Wages remain sluggish which is very likely due to the current business environment which is still over regulated. Europe and other countries have far more favorable valuations than the U.S. at this time and global trade could drive this leadership even more.

A.G. Campbell Advisory, LLC believes that the Fed will continue to raise rates one more time this year and with President Trump’s new Fed appointee, Randal Quarles, the Fed will focus on dissecting Dodd-Frank. All of this bodes well for financials and industrials. It is our opinion that growth will moderate over the next 6-12 months but will continue due to positive corporate earnings. This tends to be exactly the type of environment where stock pickers often fair better than passive investors. We will see what fate holds for us.

Wishing you an enjoyable summer,

A.G. Campbell Advisory, LLC

First Quarter 2017 Commentary

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1st Quarter Commentary 2017:   Back To The Future

Hold on sports fans, it ain’t over ‘til the fat lady sings. Feeling like 1985? Kind of Reaganesque? Whoa Bessie, as Jim Cramer loves to say, “Now we are over the tips of our skis.” Here’s what we know: we elected a President who is definitely business friendly and wants very badly to take 100% of the credit for reigniting the American economy. Since his victory in early November of 2016, the increase in the S&P 500 has been nearly 10%! Please understand, this move in the market is based completely on what may come. We all enjoyed this drunkenness through February of 2017 and then we began treading water. The first obvious cold water on our party was the unsuccessful healthcare bill that was never to be. That loss put a question in the mind of Mr. Market as to whether Trump’s other agenda items would be any more successful than his first legislative attempt. Consequently, March of 2017 traded in a fairly tight range and most broad equity indices ended relatively flat on the month, but up between 4-6 percent on the year.

The 1980’s were characterized by Reagan in two specific areas: military strength and the courage of his convictions, and tax reform with the Tax Reform Act of 1986. Without some corporate tax relief and a semblance of a new healthcare program, the markets could definitely lose confidence in “The Donald.” Currently, without some very positive earnings, most stocks are poised to move sideways and to be very susceptible to political bombshells. So, what does one do? Is the Fed going to increase rates again any time soon? Is North Korea going to be properly held in check by China? What could any and or all of these items do to our market, and what is the proper strategy?

Simply put, check your cash for upcoming needs and make sure it’s in the money market. Other than that, we advise staying long the market just as we did through the 80’s which included 10/19/87 because there isn’t a better game in town. Also, have enough cash to take advantage of a 1987 or a 2008 type of scenario. Look at the returns on monies invested very shortly after those periods. Finally, turn off CNBC and get ready to enjoy a beautiful spring.

Warmest Regards,

A.G. Campbell Advisory, LLC

November/December Year-End 2016

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November/December- Year End: Holiday Bash

First and most importantly, to all our clients, friends, family members, and the Good Lord, thank you. From a financial perspective, the yuletide that came this season started in November with an election. Many around the country were less than pleased at our choices for President of the United States, but I really don’t think that had anything to do with America’s vote. The November election was an economic vote for the capitalism that has made this country great since the times of our Founding Fathers. Annual GDP growth of 2% won’t touch our debt and the socialistic model of economics won’t help us become a happier more prosperous nation.  The country voted for something different, and the current market run up is the “excitement” of what that kind of future that capitalism might hold. Will the President-Elect deliver, follow these principles, and not play Washington politics at the expense of all of us? Who knows? But as Tom Cruise said to Kelly McGillis in the 1985 blockbuster movie, Top Gun, “it’s looking pretty good so far.” President-Elect Trump seems to “get it,” but we will see. He must pay attention to our current debt as well as his other policies.

Second, the post-election rise in the stock market was unpredictable at best, but our clients have participated and have been rewarded. We have been blessed with proper insight into allocations for that kind of situation, and I am happy to report good tidings. Prior to the meteoric rise, we were hovering around the 3-5% pretax return range for 2016. This wasn’t bad, but given the capital markets’ gift, we like the current state of asset values better! What we will point out that is much more important is that the rise in values is a perfect example of why you “have to be in the market.” The market has been incredibly volatile over the past 8-10 years. This period is no exception. All the old statistics would show us that if an investor “missed” the best 10 days of the market over a roughly 20 year period, the difference in results was mind boggling. Business Insider, authored by Sam Ro on March 12, 2015 quoted from JPMorgan, “if an investor stayed fully invested in the S&P 500 from 1995 through 2014, they would’ve had a 9.85% annualized return. However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 6.1%.” This is also why we think benchmarking is relevant to very few. Our point in giving you this information is NOT to suggest that it is right, or we believe all clients should be 100% invested in the S&P all the time. No. There are age, cash flow needs, and individual considerations related to access of the clients’ capital that would make this evidence as a hard and fast rule improper. What we are saying is that a “long, buy and hold perspective” on the markets is necessary, even though those nerve racking times are inevitable to achieve the client’s overall goal. Even as professionals, we find that this principle is easier said than done. People’s human emotions are bound to get in the way; however, it is our job to guide you and keep you primarily safe and on track to meet your needs. We take this fiduciary responsibility with the utmost of trust and responsibility.

Third and finally, none of us know what the New Year will provide. What we do know is that we as a nation need to follow our Founding Fathers precepts, heal, work hard, love effusively, and give joy and thanks to our friends, colleagues, and those less fortunate. I hope you all had a wonderful holiday and may your New Year be bright.        

A.G. Campbell Advisory, LLC

October 2016 Commentary

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October 2016 Commentary:  BOO!!!!

October was frightening but not unexpected. September and October are generally the two worst months in terms of market performance each year. This October, the specter of an unhinged political landscape, Janet Yellen’s promise to raise interest rates, and earnings season have taken their toll on the market’s performance. The Russell 2000 was down (4.75%) this month, as was the S&P 500 (1.82%). This is why we all must be long term investors and maintain liquidity at all costs. There is no way to do what is suggested on entertainment shows like CNBC. They seem to think it is valuable advice to let investors know when to get invested and when to go to cash. I would simply say that this is a fairy tale. The general economic foulness that infected the month of October along with the fun political games were mainly related to interest rates and healthcare. The two industry areas that were the most negative in this month were REITs and healthcare related stocks. Additionally, pharmaceutical and biotech companies have suffered. The ever increasing costs of health insurance for employers and workers also adds to the October pain. In the REIT world, it’s simple. Yellen will raise rates in December, and interest rate sensitive stocks are most negatively affected by her action. Therefore, REITs generally will have a decline in this environment.

So, is there any good news? Yes. While the S&P has been down in October, it is up 5.8% YTD. Relatively low interest rates should keep the housing market alive, and any change from the current political administration is probably seen by the market as refreshing. The possibility of compromise is back in the wind, and the holidays are nearly here. We can leave the pundits behind for a while and focus on our families. For me, this is generally a net positive as I hope it is for you.

Warmest Regards,

A.G. Campbell Advisory, LLC

September 2016 Commentary

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Yawn……

September was about as boring and sideways a representation of the stock market as one could find. If it were not for the fact that we “could’ve” had a possible move up in interest rates, it would have been completely lackluster. The fact that the Federal Reserve didn’t raise interest rates is very telling about what they “really” think about our economy. While the labor numbers are better, I am certain that we will be getting confirmation of a U.S. manufacturing slow down soon enough. From my perspective, there is still a giant disconnect between Wall Street and Main Street.

Most people have spent September listening to our shining examples in American politics and paying less attention to investments. The sideways movement of stocks in September was not something new. Most September and Octobers on Wall Street are generally sideways to very negative. The election isn’t helping with how much the market hates uncertainty and add to that any of Putin’s threats, and the future seems opaque. Bond yields have generally increased on rumors of a certain December rate hike and have provided market tumult in early October.

Our stance is that we are taking the rest of this month to finish most of our tax loss selling to offset capital gains, and reposition for what we think will be a better Q4 and a bumpy 2017. Our 2017 outlook means that our investment in equities must be solid citizens, have strong balance sheets and pay dividends. Additionally, we think it “is” time to make and keep a more healthy allocation to intermediate term bonds. The bonds must be of the highest quality and either tax free or AAA corporate credits. Additionally, we would like our clients to have approximately 15% cash going into the New Year. This will allow us to take advantage of the Fed’s propensity to manipulate our markets.

Finally, now is a good time to review your time horizon goals. Just remember, if you are going to retire in more than 5 years, but less than 10 years, we would still have you maintain 60-65% U.S. and International stocks. There really isn’t any other place for investors to go to have the chance of exceeding a 6% taxable return; therefore, like water, we think your money will still continue to follow the path of least resistance in the near term. Longer term, our review process will pinpoint exactly where we think your capital should be.

Enjoy the Autumn!

Best Regards,

Zandy Campbell 

August/End of Summer 2016 Commentary

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This summer the market fared better than it has in years. Earnings were okay, and there were no real “blow-ups” of any sort. Oil stayed pretty resilient in the mid $40’s, and interest rate moves by the Fed were off the table until September at the earliest. All in all, things were pretty good. The markets put together gains between 3 and 5% which has been highly irregular in past summers, and the indices have been continuing to make new highs.

The specter of the fall brings national presidential elections and FOMC possible rate changes. In brief, there will be much more volatility and room for downward movement in stocks as precipitated by that great fear of the unknown. The questions that loom are: who will win the election and what effect will it have on my portfolio? Which candidate is better for the stock market? Which candidate is better for the country? Is the Fed really going to raise interest rates when much of the data is not overly upbeat? How will this all affect me? Maybe I better move to cash? These are all thoughts that people are having today and are normal.

The truth is that for corporate earnings to continue on a very positive note, we believe that our country has to have corporate tax reform. The cost of doing business is too high a percentage of profit margins. Businesses have cut most of their infrastructure to the bone and now growth and demand may only be spurred by a better economy. At the moment, the macroeconomic policies of the Fed and our present administration seem to have failed to take advantage of the opportunity to have a more robust period of growth; thus, we have what is considered to be the weakest economic recovery from recession of all time. The IMF is asking for the Fed to be more dovish as opposed to its recent hawkish sentiments. Frankly, the IMF would like central banks around the world to keep the cheap cash machines running. We think Lagarde may be correct because the current global melody of inaction may stall our recovery engine, and this is a huge risk. Ultimately, the only real answer is for the U.S. to lead from the front with more business-friendly policies. 

A.G. Campbell Advisory’s investment stance heading into this fall is to trim profits, sit on cash and wait for the inevitable opportunities given the volatility of the geopolitical and economic climate. The election news cycle fallout is certainly to provide ample entertainment. 

A.G. Campbell Advisory, LLC