BCA Weekly Commentary 5/07/21: Rotations Continue As Our Cash Builds


SUMMARY. Our core assumption for our 7 model portfolios continues to be for 2022 to see slower overall economic growth. This week we saw a significant slow down in employment as the most recent jobs report for April showed less than 1/3rd of jobs expected to be created. Many claim this is temporary, tied to timing of reopening & hiring, but we don't agree. The economy faces a multitude of head winds including higher taxes/regulation and swelling inflation both may act to offset the recent gov't free money. Most concerning is the increase in prices not only in consumer discretionary items, but core necessities such as food & energy as well as in housing which is pressuring prices at a time there is limited supply. Eventually, these factors as well as current political policies may eventually slow economic growth as we head into 2022. To be clear THIS IS NOT THE CONCENSUS thinking in fact quite the opposite currently.


INVESTMENT IMPACT. Cash/bond allocations especially in growth models were raised this week again to levels not seen since 2019. Further, we added hedges (positions that rise as market falls) something we have not done since 2018. Given our contrarian view on economic growth going into 2022, we deem it prudent to maintain high cash levels as we expect more volatility to come. Especially true, when money flow is still going into value stocks (those tied to economic growth & presumed to benefit most) vs growth stocks at a time when we hold such a contrarian view on growth to come. Value stocks have to date been the leadership in the markets rise at a time when we question: "is value still a value any more". Thus, our caution on equity exposures and overall valuations. Any equity positions to be added in our models will be highly scrutinized until we get more economic clarity or valuations reflect our concerns.