Professional Documents
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Winter 2017
Winter 2017
Winter 2017
On the corporate side, profits have recovered but dollar strength and
rising wage costs imply a moderate outlook for 2017 and beyond.
Economic growth is projected to come in at 2.5% in 2017, but could
trend higher with a boost from fiscal policy that is likely to kick in
towards the end of the year. The global economy has proven to be
quite resilient in the face of the recent unexpected developments. In
virtually every major region, the economy is now trending upward or
has at least stabilized.
Optimism, with a dose of caution
The now almost eight year old bull market in U.S. stocks is growing
long in the tooth, but the risk of it ending swiftly is low. Bear markets
tend to sniff out economic recessions and with growth accelerating
from its below-trend pace, the risk of that is also low. Sentiment-related
economic indicators have recently soared, including the stock market
itself, consumer sentiment, the Housing Market Index (HMI), and the
Small Business Optimism Index. In addition, bond credit spreads have
behaved well and the bond yield curve has generally steepened. All of
this suggests improving growth and low near-term recession risk.
The U.S. stock market should do well but the trajectory of gains will
likely not be as fierce as witnessed immediately post-election; and
bouts of volatility are expected for several possible reasons, including:
Nike
Panera Bread
Starbucks
Tesla Motors
Under Armour
Whole Foods
Visa
To manage risk, the Transformative Growth Leaders segment of the
portfolio has no more than a 10% overall allocation.
Over the very short term, this basket of stocks has gained 9% in value
since implementation, nicely ahead of the broader market, as
evidenced by the S&P 500 which has generated a 7% return over the
same time period. Gains have been paced by Netflix (up 36%), Apple
(up 24%) and Mastercard (up 15%). During the fourth quarter, Amazon
was added to the portfolio after its stock dropped in value to a more
opportunistic buy level, and Chipotle Mexican Grill was removed as its
stock technicals and business conditions had steadily deteriorated.
Future outlook letters will include performance updates on this basket
of stocks, as well as periodic in depth looks at specific companies in
the portfolio.
Looking forward, while many uncertainties exist in the economy and
markets, the fact remains that the U.S. economy is still expanding,
inflation and interest rates remain low and numerous companies are
still growing their earnings. Even in this challenged environment,
really strong market leaders continue to grow and increase earnings.
Amin Khakiani
January 19, 2017