Bel Air Investment Advisors‘ Managing Director Kevin W. Philip and Director of Manager Research Carl Ludwigson share their thoughts on the current trends in Q3 earnings, equities, stocks and bonds.
Current trends in stocks and bonds market
Kevin W. Philip, Managing Director
A friendly Fed, low unemployment, resurgent mortgage refinancing, and a strong US consumer will buoy the US stock market and limit the chances of a Recession in 2020.
Q2 hedge fund letters, conference, scoops etc
We are staying the course in equities, but will trim gains in favor of cash flowing multi-family real estate and some private debt opportunities, while leaving current fixed levels where they are.
I believe there is a higher likelihood of a surprise to the upside than to the downside.
Expectations for a trade deal, political uncertainty, and organic growth are relatively pessimistic, which I believe are positive contrary indicators.
Earnings expectations on the S&P 500 have also come down, easing the possibility of positive surprises in the coming twelve months.
A correction of 10-15% from time-to-time in the stock market is normal and healthy. My goal would be to add to stocks in those cases and bring fixed-income down from almost 30% for a moderate investor toward 20%.
While many are calling for a weaker dollar, I believe a strong dollar is here to stay for the time being, given the unrest around the world (think Hong Kong, Iran, Kashmir, and Brexit) coupled with zero to negative interest rates in developed market bonds.
Carl Ludwigson, Director of Manager Research on alternatives to stocks and bonds
Stocks and bonds may struggle to make meaningful gains through year-end as S&P earnings are in recession with Q3 earnings expected to contract as well. Meanwhile, rates are already very low, so a significant bond rally is unlikely from here.
Upside surprise in equities could come from a resolution in trade issues with China, but the most likely near term outcome seems to be a delay in further tariff increases, or perhaps some incremental progress rather than a resolution.
The Fed may cut rates once more this year, but both the stock and bond markets have likely priced that in leaving more room for disappointment than positive surprise.
Following years of outperformance from large cap growth stocks, there is a shift underway with small and midcap value catching a bid. However, it will likely take a rise in expectations for economic growth, perhaps due to trade improvement, to really drive outperformance in value stocks over a sustained period.
Alternative investments including private real estate, private debt and hedge funds will play an important role in generating returns and diversifying portfolios as traditional stocks and bonds may have less robust prospective returns.
Bel Air Investment Advisors is an investment firm that focuses on overseeing and managing over $8 billion in assets for 350 high-net-worth families, individuals and foundations, with a stated client minimum of $20 million in investable assets.
