We wrote over the summer that we were approaching the future with “mindfulness and factfulness,” taking into account the true nature of various pressures accumulating – even during a period of positive momentum in the markets.

At that time, while higher interest rates and energy prices could naturally impede growth, we were mindful of major unfolding events that could also influence economic conditions. Trade negotiations, friction with North Korea, and Italy’s possible departure from the European Union all make for higher levels of uncertainty. While positive outcomes could lead to robust growth, the chances that policy missteps could threaten that growth are very real. Chinese stock prices, for example, have declined nearly 20 percent from their previous highs over fears of a looming trade war.

Heading into the market turmoil of last month, we were mindful of two positive drivers that seemed to be wolves in sheep’s clothing:

  • Earnings at U.S. companies have been supported by recent reductions in regulation and tax cuts. Many of these benefits are one-time in nature. While investors hope to see follow-on impacts of tax cuts, including significant increases in capital expenditures, Fidelity Investments estimates that earnings growth for S&P companies in 2019 will likely return to historic trends at around 7% – a far cry from the bawdy 20% growth of recent months.
  • “America first” policies, including the redesigning of trade agreements and a new tariff regime, have created apparent wins for the United States. The damage that has been created, however, was likely to create a negative environment down the line. While much of the news coverage analyzed how these policies might create some modest negative outcomes for American consumers in the form of higher product prices in certain industries, the larger impacts will likely present themselves with the continued breakdown of the global economic coordination that marked the powerful global growth of 2017. Current U.S. economic policies are exacerbating weaknesses in important markets that drive global growth and help to lift all ships across the world. It is hard to imagine continued isolated growth for companies in the United States without a better growth picture developing overseas. A short-term “win” for us may, in fact, lead to lost opportunities in the longer view as we weaken critical partners.

Staying mindful of the negative markers – while also seeking to capitalize on the positive – helps us stay grounded as we rebalance allocations for our clients. In bull markets, we seek to invest equity gains into protected reserves of cash and high-quality fixed income year-by-year, so that market volatility has less power over portfolios.

Read more about our recent outlook in our Q3 Long Run newsletter.

DISCLOSURE: This material is proprietary and is produced by Reynders, McVeigh Capital Management, LLC (“RMCM”) for educational and informational purposes only. This should not be construed as a research report or as a recommendation to invest in a particular sector or security or in a particular manner. This material does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security in any particular sector. The opinions expressed in this material are subject to change and represent the current, good-faith views of RMCM at the time of publication (November 2018). All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed, and RMCM disclaims any duty to update any of the information and data contained herein. Certain statements may be deemed forward-looking, but any such statements are not guarantees of any future performance and actual results or developments may differ materially from those discussed. There is no guarantee that investment objectives will be achieved or that any particular investment will be profitable. Past performance does not guarantee future results.