In the September issue of our monthly flagship publication, we feature:

  • On the Record by Chief Investment Officer Tony Roth discusses how, despite the stock market’s continued positive performance, rising political and trade risks require a shift in portfolios.
  • In Focus provides a look at growing levels of household debt—in particular, student loan debt—and what it indicates for consumer spending and the U.S. economy.
  • Investment positioning, major themes, and asset class positioning updates.

Last month bore witness to several auspicious milestones, with the U.S. stock market hitting new highs and marking the longest expansion on record. On August 22, the S&P 500 index hit 3,453 days of expansion without a bear market since its low point in March 2009, exceeding the previous record set from 1990 to 2000. Just two days later, the same index set a new all-time high, eclipsing its previous peak back last January. Importantly, the strong performance is supported by fundamentals in the form of a strong economy that is delivering on higher revenues and earnings.

Our expectation is that the economy will continue to expand into 2019 and that firms will continue to perform well. However there are two interrelated risks that merit special caution from investors: political risk in the form of the midterm elections, and the risk of the ongoing tariff battles.

The political risk stems from the possibility of Democratic victories in the fall elections and control of Congress, which could lead to uncertainty in markets about the path of policies. Despite the recent progress in trade negotiations among the U.S., Mexico, and Canada, those are not done deals and China still looms. In light of rising instability, we took action to reduce risk in our portfolios by reducing equity exposure and deploying the proceeds to cash. This move should not be read as an indication of an inevitable path to more defensive portfolios. In fact, we remain slightly overweight to equities, and stand ready to add risk back later on when we feel these exogenous risks have resolved themselves favorably and if strong fundamentals persist.

Please see important disclosures at the end of the article.

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