Hope everyone is enjoying their summer. We are returning from some time in Cape Cod. Always great to step back from the day-to-day grind, recharge, and reflect on goals and aspirations. As this marks the one-year anniversary of APG Capital, it is also a time of thanks to those who have supported me with their trust and encouragement.
Budgeting for these breaks from life are important too. Having some cushion in your retirement plans for the carefree “we’re on vacation” spending that may otherwise trigger a second thought. Needless to say, we did not splurge on the $185,000/week yacht we saw moored in Nantucket!
After a volatile 1st quarter, the US market calmed a bit in the 2nd Quarter as the S&P 500 rallied 3.4%. It is now up 2.6% at the halfway point of the year[i]. Within the broader indexes, technology and growth companies continued to be the standouts along with a recent rally in small cap stocks.
International equities have been a drag on returns, especially emerging market stocks, which have been impacted by the escalating tariffs and trade wars. Without the impact of tariffs affecting international trade, markets should perform very well this year with a backdrop of good growth, fiscal stimulus, and reasonable valuations. Much what you learn in business school can be distilled into “tax cuts - good, tariffs - bad”. The US should be careful about inciting a trade war with China as trade with the Asian countries is responsible for much of the tame inflation we’ve enjoyed, and their growing middle-class is demanding more of our exports. In addition, our large budget deficits and the current unwinding of our quantitative easing policies, require large buyers for our bond sales. China has been that buyer and without that bid, interest rates could go much higher. Hopefully, free market capitalists within the administration will prevail and talk of a trade war will be bluff and bluster. That said, bringing international exposures down, might be prudent.
On the fixed income front, the benchmark 10-year bond seems to be range-bound between 2.8%-3.0% [ii]. With the Fed continuing to raise rates, the yield curve continues to flatten. It seems like the better risk/reward payoff is reaching a bit on credit risk versus duration risk. Therefore, it makes sense to continue favoring short-term, high-yield bonds and bank loans.
Enjoy your summer.
Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.
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All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The information and material contained herein is of a general nature and is intended for educational purposes only. This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. The future performance of an investment or strategy cannot be deduced from past performance. As with any investment or investment strategy, the outcome depends upon many factors including: investment objectives, income, net worth, tax bracket, risk tolerance, as well as economic and market factors. All economic and performance data is historical and not indicative of future results. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.