View from Chair: Windermere's Market Perspectives (October 2018)

You’ll have to forgive this Canadian for the hockey analogy but it occurred to me lately that this famous quote from the “Great One” perfectly summarizes our approach to markets:

I skate to where the puck is going to be, not to where it has been ~ Wayne Gretzky

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It’s so tempting as investors to skate to where the puck has been . Buy assets as they rise, follow the “hot” trends that are discussed on repeat on the business news, avoid asset classes and securities that are falling in price, retreat to advice we have followed for years when the economy was in a very different place. Skating to where the puck has been feels familiar. If feels safe. It feels easier.

Skating to where the puck is going is much more challenging. You’re often moving against the crowd. You are doing the opposite of what the media and newspapers are touting. You may be adding to asset classes that are falling in price and selling those that are moving higher every day. You are studying the data, analyzing the trends, and seeking to predict the future. It’s not easy, but in our view, it’s the smartest way to stay in the game.

Let’s apply this to today’s markets and our latest thinking:

Where the puck has been

Here’s a look at key traits of markets thus far in 2018

•US dominates – US equity markets have materially outperformed, leadership has been narrow (until recently), and momentum/growth names have led 

•International struggles – A variety of events (strong US dollar, rising energy prices, political uncertainty, and trade fears) have led to far less demand for international equities

•US monetary policy slowly tightening – US Federal Reserve continues to raise rates and buy back treasuries.  Global central banks remain accommodative.  Equity markets haven’t yet reacted to rising rates

•Fiscal policy boosts economy – Tax cuts proved very stimulative.  US growth and corporate earnings surged higher in 2018

Where the puck is going

If there’s one thing we know about markets, it’s that they never stay constant. Here’s a look at where we believe markets are headed. Get there before the puck does!

•Not done yet – Expansionary period likely to continue well into 2019 (supportive of equities).  No recessionary signals are flashing (yet) and investor sentiment remains muted

•Times have changed  - secular bull market in bonds and “super stimulus” era is over.  Rates are rising in the US and will continue to do so

•Value leads – US markets should continue to produce positive returns (albeit at a lower return than during the prior 10 years of “easy money” policy).  We expect a rotation of leadership from growth to value

•International returns  – Fundamentals and valuations favor certain of these markets, as do technical patterns after large sell-offs

•Risks remain – Trade concerns, midterm elections, rising rates, and inflation top our list.  However, we don’t view these as reasons to sit on the bench


We are in the final period of this 2018 investing game. Which style of play are you going to choose? Which way are you going to skate? We hope you’ll join us in pursuit of where the puck is going, not where it’s been.


Invest on,

Pam