3Q 2018 Quarterly Letter


After a volatile start to the year, the equity markets have been marching higher.  A strong economy, coupled with the passage of the Tax Cuts and Jobs Act of 2017, has resulted in a boost to corporate profits, helping to push stock prices higher.
The Trump administration’s trade negotiations do not appear to be significantly impacting the overall economy although certain businesses are greatly affected.  It is our view that the trade negotiations are a short-term issue, and if successful, will be a positive for the long-term health of the U.S. economy.  However, the longer the battle over tariffs persists, the more likely it will hurt the economy and stock market.  We will continue to monitor the situation and make changes as necessary.
As expected, the Fed raised interest rates again last week, and they continue to signal as many as four more rate increases through 2019.  In response, our fixed income strategy has not changed.  We still believe there is a greater risk investing in longer-term securities.  Therefore, we will continue to capture value in our fixed income portfolios by investing in securities with shorter-term maturities.  We may also maintain higher money market balances leading up to Fed meetings.  This strategy will allow us to reinvest at higher rates assuming the Fed follows through with their stated goals.
Over the past year we have shared our concerns about the potential negative impact of rising interest rates on the U.S. stock market.  We have not deviated from this view.  The timing is difficult, but we still believe that a tighter monetary policy will ultimately have a negative effect on stock prices.  However, the degree to which is unpredictable.  We are also noticing portions of the market where stocks are trading at premium valuations.  We are not chasing these stocks but are sticking with our disciplined approach.  We remain positive on the companies we own and fully expect for the value to be recognized over time.
If you have any questions or concerns, please do not hesitate to call.

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