Portfolio Manager Commentary

June 27th, 2019 by Jonathan Chatfield, CFA

Our outlook at the moment is “cautious”. Many factors are leading us to take this approach with our investment portfolios:

• The Trump administration ratcheted up tensions with Iran by threatening retaliation against the alleged Iranian shootdown of a U.S. drone over international waters.
• U.S. Treasury yields are down in anticipation of a rate reduction expected at the next Fed meeting.
• The yield curve is currently inverted (short term rates are higher than longer term rates) The bond market expects rates to be lower going forward. In the past, yield curve inversion has foreshadowed a possible recession
• Oil is up on Mideast tensions.
• The stock market has rallied, contributing factors include President Trump‘s meeting with Chinese President Xi Jinping at the upcoming G-20 meeting and the expectation of a rate cut at the next Fed meeting.

Short term, a retaliatory strike against Iran by the U.S. could result in additional volatility. On a longer term basis, as we see the possibility of recession given the global economic slowdown that is under way, exacerbated by the escalating trade war between the U.S. and China. We are hopeful that the G-20 meeting will change the tone of the stalemate that currently exists and result in a more favorable trade agreement between the two economic powerhouses.

Additionally, Central banks worldwide are enacting measures (lowering rates) to stimulate their economies. These coordinated stimulative policies may leading to resumption of growth. However, in light of the risks we see, our preference is to take on a more conservative (“cautious”) posture in client accounts at this time.

How does this affect your portfolio? With the S&P hitting a new record high, and in light of a potentially riskier market environment, we are taking steps to reduce our exposure to selected equities in client portfolios.

Stay tuned…