BCA Weekly Commentary 11/12/21: Fully Vested Overweight Health Care
SUMMARY. Our economic growth concerns remain as inflation remains very high (6% reported in CPI but in our view much higher) driven by runaway fiscal spending. This is eroding consumer spending and eventually may way on growth overall. At same time the Federal Reserved moved forward on plans to reduce bond buying (ie QE) for the first time in quite a while which may pressure interest rates to go higher. Although additional fiscal spending may act to accelerate growth near-term ultimately it may not lead to sustainable growth there after as inflation offsets its effects. As a reminder real wages for workers are DECLINING not rising which is the fuel to consumer spending driving US economic growth historically. In 2022, our assumption is inflation should subside, but remain elevated as growth wanes throughout the year as well as supply chain distributions get sorted out pressuring prices.
INVESTMENT IMPACT. We remain fully invested across models, in fact slightly overweight equities (VS bonds) as interest rates may rise into 2022 pressuring bond prices. We continue to see value in health care and remain overweight (60% plus of the portfolios) tied to our assumption economic growth may wane next year. In particular, we are finding many heath care names significantly below their 52 week highs which are experiencing covid-19 related growth disruptions and as they get sorted out into 2022 may cause a re-acceleration in growth. As US economic growth wanes in 2022, as well as inflation, we expect a gravitation back to small capitalization stocks and heath care in particular which generally less impacted from economic growth variations.
Our model portfolio performance has been updated on our website as of 10/29/21.
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