Investment Opportunities Amid Tradewar


I believe that the current threat of a prolonged trade war is serving as an emergency brake to a stock market that is pressing the gas pedal as hard as it can with positive economic data reports; including, but not limited to, corporate earnings, serving as tailwinds. Once any semblance of progress is reported with respect to trade negotiations, I would anticipate this emergency brake to be lifted and for constrained stock prices to rise accordingly.

This outlook is consistent with my overall theme for 2018, which suggests that improved valuations and overall optimism around economic growth prospects are forming the basis of a new and different type of bull market.  While additional short-term bouts of volatility are expected, this new bull market will likely be driven by earnings growth and economic expansion as opposed to the now 9-year-old secular bull market that was driven more by accommodative central bank policies and political posturing.

While the imposition of tariffs is nothing to ignore given their potential impact on global economic growth, I view the likelihood of a prolonged trade war to be low at this time. In fact, I believe that a bigger risk to the market currently, that many are not necessarily considering, is that the Federal Reserve may move quicker, or in larger increments, as it relates to interest rate hikes than is currently anticipated as a result of the growing strength of the U.S. economy.

With all of this in mind, I suggest the following portfolio management ideas for careful and thoughtful consideration, as appropriate, for the second half of 2018.

Small-Caps are Outperforming but Look for a Large-Cap Resurgence

Consider Lagging Sectors that are Well-Positioned to Perform Looking Ahead

Identify Companies with Strong Balance Sheets and Histories of Earnings Growth

Don’t Discount the Value of Bonds in Income and Growth-Oriented Portfolios

Review Relative Valuations of International Equities


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