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Strategic Insights

Volume 7, Edition 28 | August 13 - August 17, 2018

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The Great Fair Trade

Doug_Walters Doug Walters | Articles

Read Time: 4:30 min

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Fair trade was brought to the fore again this week, shaking up markets, but this is no time to be running for cover. So what should investors do?

Market Review

Contributed by Doug Walters

Markets took investors for a roller coaster ride this week as U.S. stocks first fell on continued contagion concerns out of Turkey only to pop on suggestions that U.S.-China trade talks would resume. We take this as an opportunity to remind investors they should not get caught up in this short-term noise.

Rising Above the Fray

Nearly four years ago, not too long after I left Wall Street to join Strategic, the S&P 500 had notably traded up to a valuation not seen since 2005. Despite the seemingly high price tag for stocks, the S&P 500 has earned investors nearly 50% since then. Anyone who had opted to exit equities back in 2015 would be kicking themselves today! Such are the dangers of market timing

It is a common misconception that an investment manager’s job is to try to navigate in and out of the market on behalf of their clients. While no doubt some managers play this game, it is a losing proposition for all but the luckiest. But if we investment managers are not actively getting our clients out of “expensive” markets, what are we doing? Our job is to give our clients the right level of exposure, given their ability to take on risk, and then continuously monitor the market and available securities for the best ways to achieve that exposure. This is prudent, intelligent investment management, as opposed to risky market timing.

Of course, a well-considered investment process is only one part of comprehensive wealth management. True financial wellbeing also requires meticulous attention to retirement, education, estate, tax and business planning.

1 million+ visitors
Next week the Great New York State Fair opens in Syracuse, NY. It is the oldest state fair in the country, having first opened its doors in 1841. While many outside of the state only envision The Big Apple, when they hear “New York”, here in Upstate we also think of farms, countryside, apple orchards, and mountains. The Fair is an excellent opportunity for these lesser-known aspects of New York to shine. Last year, the fair hosted over one million visitors, drawn in by crowd favorites such as the $1 loaded potato, a 25 cent cup of chocolate milk, and the 800lb butter sculpture. Our founder, Alan Leist, Jr., has some history with the Fair as described in The Week Ahead.

Strategic Update

Contributed by Max Berkovich , Aleksey Marchenko

STRATEGIC ASSET ALLOCATION

Turkish Bath

U.S. equity markets felt some heat this week from worries over trade policy and risk that Turkey might have to take a bath on its foreign denominated debt. But the S&P 500 ultimately finished on a positive note after U.S. and China agreed to meet and hopefully reconcile their trade dispute. The proposed meeting between the two countries was not enough to salvage the week for emerging markets and gold though; speaking of which…

  • The escalation of Turkey’s debt concerns took a toll on emerging markets. Investors worry that trouble in Turkey could be contagious. Argentina is already in the crosshairs with a similar current account balance as Turkey and an eye-popping inflation rate.
  • The problem is the combination of foreign denominated debt with a steep depreciation of emerging market currencies. For example, the Turkish Lira has declined nearly 40% against the U.S. dollar since the start of the year. Debt denominated in U.S. dollars that could have been paid off with 100 Lira at the start of the year would now take about 160 Lira.
  • Investors have been unloading gold as the U.S. Dollar continues to strengthen against a basket of major currencies. Generally, investing in gold is viewed as betting against the greenback.

STRATEGIC GROWTH

Fly Dragonfly

The Consumer Staples sector was the leader this week. The Technology sector was the laggard, thanks to the semiconductor space, which was tripped up by soft guidance from two companies we do not own. Speaking of Technology…

  • Alphabet Inc. (GOOG, GOOGL) parent company of Google and YouTube may be onto a new scheme to gain access to the Chinese market, which it exited in 2010. The company is reportedly working on an app that complies with Chinese censorship demands codenamed “Dragonfly.” This product has stirred discontent at the company as about 1,000 employees signed a letter demanding transparency around the moral and ethical issue of a censored search product. The CEO Sundar Pichai claims they are “not close to launch.” Alphabet has been launching other products in China like a file-management app to gain exposure to this important market.

STRATEGIC EQUITY INCOME

Clicking on all Cylinders

The Energy sector was the undisputed biggest laggard this week, thanks to plummeting crude prices. High dividend paying sectors had a good week as interest rates remain range bound. But it was the Staples sector that was the star thanks to an earnings print from…

  • Walmart Inc. (WMT) topped expectations on both sales and earnings, but it was a 40% pop in online sales for the quarter and a bump in full-year guidance that stoked investor euphoria. Also of note, the company’s comparable sales grew 4.5% for the quarter, more than double consensus expectations and Sam’s store’s comparable sales were 5% higher this quarter thanks to a 6.7% increase in-store traffic.

Indices & Price ReturnsWeek (%)Year (%)
S&P 5000.66.6
S&P 400 (Mid Cap)0.75.8
Russell 2000 (Small Cap)0.310.2
MSCI EAFE (Developed International)-1.4-6.3
MSCI Emerging Markets-3.8-11.8
S&P GSCI (Commodities)-1.91.6
Gold-2.3-9.4
MSCI U.S. REIT Index3.02.3
Barclays Int Govt Credit0.1-1.7
Barclays US TIPS0.0-1.9

The Week Ahead

Contributed by Aleksey Marchenko

Central Banks Should Not Be Taken in JEST

Jackson Hole, Wyoming, will host the annual global central bank conference where Federal Reserve Chairman Jerome Powell is scheduled to speak on monetary policy.

  • Any comments regarding foreign dominated debt in emerging markets have the potential to move markets.

European Central Bank (ECB) and Federal Open Market Committee (FOMC) meeting minutes will shed light on any monetary policy concerns.

  • In the last meeting, the ECB stated that they are planning to unwind their monetary easing program but will keep the rates on hold for now.
  • The U.S. Federal Reserve has previously warned investors that an overnight lending rate increase is on the table for September.

State Fair in beautiful Syracuse, New York will begin on Wednesday, August 22nd and will last for 13 days until September 3rd.

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  • Strategic has a sentimental attachment to this annual event. In the early days of founder Alan Leist, Jr.’s foray into financial planning, he rented a booth at the fair to sell mutual funds. From those humble roots, Alan has steered this company to one of the nation’s Top 300 Registered Investment Advisors, ranked by the Financial Times.
  • To this day, Alan makes an annual pilgrimage to the Fair to commemorate those humble roots.

TJX Companies (TJX), Williams-Sonoma (WSM), and Medtronic (MDT) in our Equity Income strategy will report their earnings on Tuesday and Wednesday.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1 billion.

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