ECONOMIC IMPACT. The ever changing interest rate picture has evolved once again from rate hikes last year to 6 cuts late in year to 3 in 2024 and now ZERO. If that does say something about how wrong the so called experts are I don't know what does. The issue is conflicting data points with real life vs govt derived data in reporting growth & inflation. WE HAVE LONG MAINTAINED THAT GROWTH IS BEING OVER REPORTED WHILE INFLATION UNDER and the end result has been a clouded rate picture. Be that as it may we expect the interest rate picture to remain static into the elections as govt spending as well as other green policies elevate inflation as debt payments weigh on growth of the economy. Govt debt has grown so large that we may be headed the way of Japan/EU whereby the govt starts controlling the long end of the yield curve thru more QE or money printing. We are not there yet but my gut tells me that's where we are headed depending on the outcome of elections. In the end stagflation thru years end seems likely, but the longer term is for rates to recede.
INVESTMENT IMPACT. Stock selectivity will be even more important in an uneven economy. We have always been selective and now even more so choosing stocks that provide attractive valuations, growth and yield. With rates stuck at higher for longer and likely only marginal improvements thru years end we continue to expect a stagnant economy. This means selecting stocks that are LESS dependent on the economy to grow vs something secular or product driven. Currently, we are finding a plethora of names that fit this criteria. Models are generally at their cash targets as a result positioned we hope for the next leg of the market most likely coming post election.
We remind investors that going forward expectations for returns for the overall market over the next decade remain low as we expect well below returns vs history. Be that it may we are hopeful our models can improve on that going forward.
Our model portfolio performance has been updated as of the date of this newsletter as tracked by Sharesight.
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