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