Earlier this week, Fidelity Investments hosted a lunch with a senior member of their Capital Market Strategy Group to provide their views on the markets. I (Travis) had the privilege of attending the lunch and it was a terrific opportunity to consider how Fidelity’s thoughts on markets line up with how we are currently positioning client portfolios. Below are some key quotes from the lunch along with our take on Fidelity’s views.
- Quote: “We are still in a secular bull market and a recession is at least two to four years away. However, the economy is late in the cycle and we are likely to see much more volatility going forward – what happened to markets in December is an example of that volatility.”
TJG’s Take: Data on the economy and stocks are clearly mixed right now. Even this week, two important data releases from the Institute for Supply Management (ISM) showed manufacturing activity increased in March (surprising to the upside), while activity in the services sector of our economy slowed in March (surprising on the downside). Whether you are an optimist or a pessimist on the economy, recent data will give you something to support your view. We aren’t sure when the next recession will hit but agree that volatility is likely to be higher going forward. We think having more “dry powder” to take advantage of that volatility when it does happen is essential for portfolios.
- Quote: “We still like U.S. equities, but go large over small and focus on growth over value.”
TJG’s Take: When it comes to U.S. stocks, we agree. Compared to a year ago, we have more in large caps relative to small caps across our strategies. In terms of style, “growth” leadership is hitting some historic extremes relative to “value,” so we are not making a huge tilt either way.
- Quote: “International stocks had headwinds last year that we think will become tailwinds this year and as a result may end up being the best trade in your portfolio.”
TJG’s Take: Wow, that’s a bold call, but we can see it happening. The headwinds Fidelity was referring to are the strength of the U.S. dollar and trade (tariffs). If the U.S. dollar weakens relative to other currencies and President Trump/Chinese Premier Xi come to a trade agreement international stocks will have the wind at their back. Over the last few years, U.S. stocks have outperformed international stocks (2017 was the exception) but this is NOT the time to abandon foreign stock allocations – being global (owning both U.S. and foreign stocks) makes a ton of sense to us.
- Quote: “If you are going to take risk, don’t do it in your bonds – stay high quality and make sure your bonds are good diversifiers for stock market volatility.”
TJG’s Take: Our asset allocations for diversified portfolios are currently overweight Global Stocks AND overweight High Quality Bonds). We are underweight Credit (low quality bonds) and Real Assets as an offset. We believe stocks offer the most upside potential but with mixed data and the prospect for higher volatility going forward, we also believe High Quality Bonds are the best tool for managing risk.
We love Steve Leuthold’s quote: “opinions are for show, but the moves we make in client portfolios are for dough.” We found ourselves agreeing with much of what Fidelity’s strategist had to say. But even more important is how we are applying those views to the portfolios which represent the goals and dreams of our clients.