The Bull Market Still Has Legs

  • Eugene Yashin

Eugene provides reasons this bull market & growing economy still has legs.

Market Overview:  The economy and earnings still look great. Stay positive and keep long-term prospective.

US Economics:  The economy strongly advanced in the second quarter, following stretches of mediocre growth. Thus, after years in which gross domestic product growth had averaged an unremarkable 1.5% to 2.5%, the April-to-June period saw GDP surge north of 4%. Lower taxes, steady job gains, and higher disposable income boosted consumer spending. Gains in exports and federal government spending also contributed to strong results.  The question is how sustainable such growth can be. Judging by the recently revised consumer saving rate, we believe the recent growth has firm legs to stand on.  

Global Economy: As the global economy moves through the third quarter, signs are that GDP growth will post an eighth consecutive reading above 3% annualized, according to JP Morgan. This is the message from activity indicators tracking gains in manufacturing output and in retail spending this quarter and from the stability in the August global PMI. Even if global GDP grows below a forecasted 3.4% this quarter, there is little doubt that the global expansion is still delivering solid growth, a point reinforced by the continued drift down in global unemployment rates.

Portfolio Rebalancing: In the middle of August, we conducted our regular quarterly equity portfolio rebalancing. Reviewing our Macro Forecasting Models, we couldn’t help but notice that a recent upward revision of Personal Saving Rate provided by the Bureau of Economic Analysis lifted our views on Consumer Discretionary and Technology sectors. Now we observe an interesting barbell situation.  We believe cyclical sectors (Discretionary and Technology) and defensive areas (Staples, Healthcare and Telecom) look attractive going forward. Judging by history, when consumers start saving more, that is a good sign for sustainability of the economy. By not overspending when times are good the consumers prepare themselves for a soft patch down the road. That should make things evolve much smoother when the economy slows down.

As for positions in our portfolios, we have made very little changes. The well-rounded companies we have in our strategies still look more attractive than alternatives. We prefer reasonably priced, free cash flow producing, profitable and growing entities. If history is any indication, those companies tend to behave well for the most part of an economic cycle.  We believe in such evidence when it comes to a successful portfolio composition for long-term results. 



Past performance may not be indicative of future results. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions. Any forward-looking statements, information and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain and actual events or results may differ materially from those reflected in the newsletter. Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice. A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel and operations are available upon request.

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