October 2018 Executive Summary

  • After a great 2017, investment markets became unstable in 2018 over global trade disruptions. Many US and foreign asset classes got hit, but we expect recovery as the world order adapts and normalizes. The US is in a position to dictate better terms, and is muscling to get what it wants. Trade will normalize in 2019.
  • US stocks are by many measures overvalued and due for a correction or bear market. Because the US economy is so strong, this may not occur for a while. Still, US stock investors should focus on value – quality companies that are out of favor and relatively cheap.
  • Foreign stocks for the most part are very cheap and represent great value. While it will take patience to capture this value, the next leg up for investors from 2019 to the early 2020s will be non-US stocks.
  • The US economy is on a tear, and will keep soaring on the wings of tax cuts, infrastructure spending, and still low (but rising) interest rates. Cracks are appearing, though, and a recession is inevitable at some point. We expect a slowdown as interest rates normalize in the 5% range in 2020 or 2021.
  • Investment strategy summary:
  1. US stocks should be in a value posture
  2. Non-US stocks deserve significant allocations
  3. Yields are becoming attractive, but mid and longer term bonds should be avoided until rates climb higher.

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