3RD QUARTER EQUITIES
We expect the market to be more subdued in the fourth quarter than it was in the third. The widespread view of the Wall Street analysts is that the S&P 500 index might see another 2 % increase by year-end. The big event that creates uncertainties is the Congressional mid-term elections. Anticipating the outcome and then assessing the outcome should give investors some pause.
We do expect the markets to be positive in 2019 – but with lower growth than 2018. Rich stock prices should create some restrain even if the economy stays healthy. Looking to 2020 and beyond, we are hesitant to make a specific forecast. But we are certain the prospect of economic and market slowdown and reversal will take hold at some point.
Asset Allocation: For clients investing new money, we recommend 60% allocation to equities and the remaining portion to cash, bonds with maturities under two years, and alternative investments. We stagger the time period in which we reach that 60% level. For fully invested clients, we recommend to trim equities to 60-70% depending upon time horizon and objectives.
Preferred Equities: We remain focused on large cap companies with strong balance sheets, sustainable cash flows, and credible business models. Companies that pay attractive dividends are central to our strategy. Some of the sectors getting our attention:
TECHNOLOGY: We are cautious about this sector – especially given how rich the stocks have grown – but areas such as bio technology and semi- conductors have our interest.
FINANCIALS: Rising interest rates will make banks more attractive – and our focus is upon regional banks. Prices are reasonable for many of these bank stocks.
CONSUMER STAPLES: We are looking at companies in this sector because it has value stocks with good future potential.
HEALTH CARE: Medical devices are an interesting area of opportunity.