Where are we going?
Over the summer, it has been all but normal in the world. Trade wars, tariffs and NAFTA talks have taken up most of the headlines, yet somehow, equity markets in the U.S have stayed calm and actually gained 5.9% for June, July and August. Clients ask how this is possible-why are the markets still rising with all this uncertainty?
The answer to this question comes back to corporate earnings. Out of the 500 companies in the S&P500, 80% of them beat earnings and raised projections for the upcoming year. Some of this positivity has come from tax cuts, but most is due to a strong economy. Unemployment is down, wages are growing and so is consumer spending, which came as a surprise when big retailers such as Nordstrom, Nike and CVS Pharmacy not only beat earnings but blew them away. We have not seen this for the past few years with "value stocks" such as the aforementioned, specifically when compared to the growth of “growth” stocks such as Amazon, Apple, Google, Facebook and Netflix.
The big question now is where are we going? The answer is no one really knows, and the best we can do is to make educated predictions. What we do know is the 40 companies in our portfolio are of the highest quality, because we invest in businesses not stocks. It is our belief that we will continue to buy U.S equities, and it is my recommendation to look for companies with great businesses and cheap valuations. The one which we have continued to add to our portfolio is CVS Pharmacy.
Sincerely, Kyle G. Sarai, MBA