MacNicol’s Quarterly Commentary- January 2019

Waking up to a new economic normal in which economic growth may not meet prior expectations is challenging for investors to accept. It conflicts with prior views of a vibrant economy, and questions were further rate hikes are really necessary. Corporate earnings, which look “peakish” to us, will have to be discounted at a higher-rates and this is bad for stocks. A new (weaker) economic normal also undermines the credibility of unconventional monetary policy (uber low rates + central bank asset purchases). Quite frankly, few things trouble us more than having to accept the idea policy makers might be at some kind of dangerous precipice in which they are out of “ammunition” in the fight to sustain the convergence of economic growth to a very small 2%. Few things that is except the idea that the economy was never really that strong to begin with. How can everything simultaneously be “so good” yet so fragile? An economic implosion is not our base case scenario. But we are concerned that economic growth may be slowing and decoupling.

They say defense wins championships, we say defense can also mean the difference between getting to your financial goals or not. The MAAM investment team ultimately believes that we are now at the very late innings of the economic and capital markets’ cycle and have refined in three specific ways: new client capital is deployed more selectively, our

capitalization approach is biased toward larger cap names versus growthier names and finally our sector allocation strategy is targeting safer havens like Utilities, Healthcare, Real Estate and Consumer Staples. We believe this is a prudent strategy for investors to follow in what is likely to be a transitional period in global markets.

If you know someone who is anxious about their investments, please have them call us. To paraphrase Benjamin Graham at the start of The Quarterly a brief phone call could lead to smoother sailing down the road.

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The Quarterly Commentary January 2019


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