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


Summer has finally arrived.  There is a seemingly endless list of things to do and places to be – leaving even less time than usual to focus on your money and the markets.  What key items should you be paying attention to?  We suggest keeping your “eye on the TIGER” - Trade, Interest rates, Growth, Earnings, and Recession.

Trade  - What started as a war of words (and tweets),  a “trade tiff” has escalated in recent weeks.  It is becoming more likely that a trade war will ensue on some level (if it hasn’t already).  This past weekend, the latest development was Trump leaving the G7 summit early and refusing to sign the joint communique.  Trump’s actions were largely in response to Justin Trudeau’s (Prime Minister of Canada) comments that Canada would “not be pushed around."  Trump remarked of the G7 that the US is “being taken advantage of by virtually every one of those countries.” 

Attention was quickly turned today to the summit between Trump and Kim Jong Un, a historic meeting that led to an agreement by North Korea to dismantle the country’s nuclear program.  Many details remain to be clarified however, this is a very encouraging sign for global relations.

It’s clear that the the US’ role on the global stage and trade equality remains top of mind for the administration and more is certain to come. 

Interest Rates – Interest rate levels serve as a key component in the pricing of financial assets, and as a result, they deserve your attention.  Interest rates have risen since the beginning of the year (Rate on 10 year US Treasury sits at 2.96% on 6/11/18, up from 2.4% as of 12/31/17).  The US Federal Reserve meets again this week and it is highly anticipated they will again raise rates (the 7th such hike since December 2015).

Perhaps of even more interest is the flattening of the yield curve (when short-term rates rise at a faster rate than long-term rates).  The spread between 2yr and 10yr US treasuries is a much-monitored measure and that spread is declining (rests at 0.43% as of 6/12/18). 

Also worth consideration are interest rates around the globe. Both Europe and Japan continue easy monetary policies (albeit at a slower rate), which will present an interesting dynamic as the United States continues to move the other direction (ie: tighter monetary policy)

Growth – 2017 was the year of “synchronized global growth.”  That phrase was repeated countless times as markets reached record levels.  Has that changed in 2018?  No.  There are 189 economies in the world, and 185 are growing (what are the four?  North Korea, Venezuela, Brunei, and Equatorial Guinea).  The US is no exception, with 4% GDP growth not out of the question.  Economies are advancing – and for now, are growing despite the risks posed from potential trade changes and rising rates.

Earnings -  We are coming out of a record setting earnings season in Q1 2018.  Year over year earnings growth for the S&P 500 was 26.6%.  Much of that gain was driven by the tax law changes;  however the fact remains that earnings are accelerating at incredible rates.  It is expected that we have seen the peak in earnings growth rates – but not yet a peak in absolute earnings levels.  With growing economies and improved cash flow for consumers (due to the tax cut and declining unemployment), companies across virtually every sector are seeing improvements in their earnings and that trend is expected to continue.


Recession – As primarily equity investors, this is a major area of focus.   We are continually evaluating whether a recession appears imminent as that would present a material headwind for many companies in which we are invested and the markets in general.  How can we predict a recession?  We can’t – but we can observe economic data that has tended to be a very strong predictor of recessions in the past.  The data we use most frequently is the Index of Leading Economic Indicators.  It’s a collection of ten data points utilized to predict downturns in the economy.  We look both at the overall trend line, but also at each of the component parts and their trends.  We are focused on whether the data is getting better/worse, not so much whether its absolute value is good/bad.  Below is a summary of the latest reading of the data and as you can see, we are still in a “better” period

Enjoy your summer and be sure to keep your eye on the TIGER.

Invest on,


View from the Chair: Windermere's Market Perspectives (November 2017)


November has arrived - the month during which we take time to officially give thanks.  In the spirit of the upcoming holiday, let's run through five gifts the markets have bestowed upon investors during the year

1.) Synchronized global growth - 2017 was a year in which virtually every country and every economy experienced positive growth.  This synchronization is very rare and has resulted in gains across both domestic and international markets.  What led to this growth?  A confluence of factors including: accommodative monetary policies, low/stable energy costs, and technological advancements.  Further details on growth rates are shown in this report completed by the International Monetary Fund

2.) Appreciation across asset classes - As you will see in the table, returns for almost all asset classes (MLPs are a notable exception) have been positive for the year.  The growth discussed above and ongoing low interest rates (discussed below) have made this a very encouraging environment for investors



3.) Continued low interest rates - The US 10-year interest rate began the year at 2.45% - and today (November 2, 2017) it rests at 2.3% - despite the US federal reserve bank raising rates and ending bond repurchases.  How have rates not only stayed low, but fallen, in the US?  It is largely the result of other central banks (Europe and Japan) remaining accommodative.  Until we see rates rise around the globe, markets in the US continue to gift us low and steady interest rates, which preserves value in fixed income and does not contribute to disruption in the equity markets

4.) Ongoing innovation and advancement - It's easy to reduce companies to numbers - whether it's the share price on the ticker or earnings results detailed in the newspaper.  But let's not forget what's behind these numbers:  real companies producing valuable services and products for the population.  Reflect back on how your own life has changed in the past year - and the companies that have powered those changes.  Whether it's one-day shipping of that book you have to read, or a new medication someone in your family is taking, or a car that drives itself - the world is changing at an incredibly rapid pace and it's a gift to be able to invest alongside the owners and operators or many of these companies

5.) Ample runway ahead - Perhaps the gift we most appreciate from today's markets is that there seems to be ample runway for continued success ahead.  Global growth is continuing (see estimates in link above for 2018), interest rates remain at low levels (and appear stable), lower regulation and lower taxes are still on the table (and will hopefully come to fruition at some point in the near term), and economic indicators are trending in positive directions.  In addition, we feel strongly that fund flows are also supportive of ongoing growth in equity prices.  Why?  Despite the record performance in US equities, the category has experienced net outflows.  Where has the money gone?  Cash and bonds, and international equities.  As equities continue to advance and as rates rise (eventually), we anticipate money coming back into equities, which should provide more buying demand and support of current valuations.


There are many gifts the market has offered up this year for which we are incredibly grateful.  And as far as we can tell, the positive investment environment should continue for the remaining two months.  So, invest on my friends - and do so with a grateful heart.