July 10, 2019

Stocks continue on a path of strong performance. The second quarter of 2019 experienced some bumps along the way, but as of our writing, the domestic stock market hovers near all-time highs. In previous quarterly commentaries, we have explored many of the themes influencing the market in depth. While those themes remain relevant, this letter also aims to connect them back to our clients, as our most important input in portfolio construction has always been, and will remain, our clients and their unique circumstances.

For some time, news concerning trade tensions has moved the stock market. We currently find ourselves in a respite, as the U.S. and China have agreed to a timeout of sorts, where both state they will return to the negotiating table and cease levying additional tariffs for now. Importantly, however, both nations have not articulated a path to resolution. It remains unclear if a trade deal will be agreed to this year. We expect short-term market fluctuations to continue around any news on this front. In a broader sense, a number of global tensions could also threaten market confidence. Conflict with Iran, the continuing difficulties of Brexit, and unrest in Venezuela all have capacity to move global markets.

Additionally, we note a resurgence of interest rate volatility. The Federal Reserve’s actions seem to have a strong hold on equity and fixed income markets. The broad expectation is for its key interest rate to be cut, which should continue to fuel stock performance and economic expansion. Looking specifically at fixed income investments, 10-year U.S. Treasury rates recently dipped below 2%, which is lower than we’ve seen in some time. For our clients, we continue to deploy fixed income as a capital preservation strategy, expanding our toolbox to consider possibly longer-dated bond issues going forward.

Finally, we continue to watch the domestic growth rate, noting that we are officially in the longest U.S. economic expansion, now clocking in at 120 months. Current GDP growth appears healthy, with the first quarter of this year measuring above 3%. All eyes are on the future, to see if growth can persist despite headwinds like trade tensions, an increase in sovereign debt levels, and a slowing economy in Europe.

At Clifford Swan, we consider all of these market influences when constructing portfolios. However, always the most important input to our work is a deep understanding of a client’s unique goals. This often stems from knowing them, their family members, and how their invested funds play a role in their overall financial strategy. For our institutional clients, this means having a strong relationship with their investment committee and grasp of who their additional stakeholders are and how the organization’s mission serves them. For example, some of our clients choose to invest for the next generation or for goals far into the future. In our portfolio work, this often translates into an investment mix customized to withstand more short-term risk in favor of increased long-term return.

We welcome the opportunity to help our clients clarify any specific upcoming milestones. For example, do they anticipate any large spending needs, special projects, or inflows into their portfolios? Those details help us plan accordingly, including making sure we can adequately provide for any liquidity, regardless of the market’s short-term path. Ultimately, knowing our clients and their objectives allows us to create a long-term plan for the sustainability and success of their wealth and mission. This includes looking at spending, if relevant, and thinking about how to deploy funds to achieve the most meaning to them or their organization. After decades of experience, we recognize that the best portfolios not only consist of well-researched quality investments, but we understand that they are most impactful when they fully align with client needs.

The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.

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