BCA Weekly Commentary 9/23/22: Capitulation on Growth & Shift to Dividend Stocks


ECONOMIC IMPACT. With the Fed again raising another 75 basis points and promising more to come the economy even by Fed's own admission will slow to a crawl. As an example, next year they believe growth will be 1%ish and the Atlanta Fed expects only 0.3% growth this quarter. Whether true or not the reality is we maybe in for a multi-year period of sustain low or no growth until such time the Fed capitulates that growth is the concern not inflation. Its our belief that what's left of inflation is tied to the war not the economy as demand has been waning for goods for sometime. Energy & food specifically remain elevated both subject to war supply disruptions not too much demand which typically causes prices to rise. Thus, the Fed is pushing on string and for whatever reason insists to weaken growth elsewhere to compensate. Eventually maybe as soon as year's end the reality of negative GDP growth and/or inflation reduction will set in and it may signal a pause in rate hikes.


INVESTMENT IMPACT. This week we significantly added exposure to higher yielding stocks such as in mining, banking, chemicals, real-estate and shipping in anticipation of long-term rates to either stabilize or fall. Yields typically range from 3-5% and most are large capitalization companies and are down 30-50% from their highs. Although many are tied to economy we are convinced a slow growth and return environment is to come and the higher yields may act to buffer the downside and deliver returns as wait for better times. The Aggressive Growth Model has a current yield of nearly 2% with higher yields as we move into the income models of near 4%. Panic on growth is growing so patience is key as better times maybe on horizon as we move in 2023. As rates stabilize we believe we have designed models with a mix of growth & yields.


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.


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