Updated: Nov 2, 2021
SUMMARY. Regardless of the successful passage of additional stimulus our assumption is we are headed for a very slow growth environment in the years to come tied to monetary and fiscal constraints, and higher inflation and interest rates. In addition, corporate America seems more focused on social issues vs profits as govt coddling increases to produce growth. Growth may temporarily accelerate short term by the passage of the latest round of govt stimulus but maybe fleeting and short lived with offsets like higher inflation and interest rates combined with higher taxes. History tells us that fiscal stimulus MAT NOT produce long term growth but may act as a BRIDGE to it by boosting short term growth IF THE RIGHT CONDITIONS EXIST TO SUPPORT IT. The issue is that higher taxation, regulation/intervention, political division/uncertainty/discrimination and Covid-19 all act as being the subtractive to growth not additive.
INVESTMENT IMPACT. The design of our model portfolios is based on selecting those companies that may exhibit above trend growth and less dependent on a slower growth economy. In a market that is in corrective phase where valuations in large capitalization stocks remains elevated it may take time for investors to appreciate such characteristics. Further, since those characteristics are found mostly in smaller capitalization stocks that are subject to whims of a single seller in any given day volatility can be high and not reflective of long term fundamentals. However, longer term, we believe our clients will be rewarded with returns to justify the risk/volatility especially if the assumption is correct of a very low growth environment to come. Last week we reduced cash levels to near target levels while elevating equity levels especially in the healthcare space in growth models while selectively adding dividend paying stocks in income models.
Our model portfolio performance has been updated on our website as of 7/30/21.
For more insights see our website and disclosures found there at BCA. The thoughts contained in this newsletters are intended lend insights into BCAs current & future thinking on changes to BCA model portfolios. They are not intended to be recommendations and should not be taken as such. As always contact us for further explanation of how these events can affect your finances. To unsubscribe from our newsletters & website please email us with "unsubscribe" in the subject.