Greg, Jeremiah, Ray and I are just returning from a two day investment forum in Manhattan, NY hosted by the Investment Solutions Group (GIS) at HighTower. Over these last couple of days, we had the opportunity to hear from third party economists, investment strategists and portfolio managers from firms like Blackrock, Strategas, Doubleline and Gotham Capital. We also spent time interacting with other HighTower Partners and Advisors to share best practices and investment ideas. The following represent our key takeaways.
- The overall consensus is constructive on global equities meaning that stocks should be able to move modestly higher over the next 12-18 months. Corporate tax reform could extend the recovery beyond this time period possibly an additional 12-24 months.
- While the yield curve is flattening, stocks can still perform well during the flattening period. Eventually we could get to an inverted yield curve which would make us more cautious.
- The US Consumer is in good shape, the job market is strong and consumer debt is declining.
- Credit conditions remain supportive of stocks. No signs of stress.
- Leadership is risk seeking and markets have not narrowed significantly which again is supportive of stocks.
- The new Fed Chair will continue raising interest rates however should continue at a slow and gradual pace thereby not impacting growth. We don’t get concerned about a slowdown until we get above 3.50% interest rates as measures by the short term Fed Funds Rate. The market is currently pricing in a rate hike in December and another 1-2 rate hikes in 2018.
- The best opportunities for growth include international stocks especially Europe, Japan and the Emerging Markets. These markets have more attractive valuations than US stocks and are in the earlier innings of recovery. In terms of US stocks, the best opportunities can be found in large cap bank stocks which are in the 1st or 2nd year of a 3-5 year run fueled by higher interest rates and margin expansion as well as select technology stocks which continue to offer innovation, barriers to entry and above market growth.
- We continue to advocate that now is a good time to rebalance portfolios back to the stated target allocation with stocks making new highs and risk assets likely becoming less rewarding than they have over the last few years. We also maintain our overweight bias towards International and emerging market equities for the reasons mentioned above.
Frank Masse, ARPC®
Managing Director & Partner