Research & Advice

This column is being written the day after Theresa May delayed the Brexit vote (that was December 10th), the same day the US stock markets experienced a roller-coaster ride where indices plunged to test recent lows of the year only to bounce back up and close in the positive. Given it was a rather crazy day, let’s inspect it for clues about what to expect in the months ahead.

• We are beginning to favor Value stocks a bit more than we have.
• For nearly a decade we’ve been overweight Growth stocks. We continue to prefer Growth on a long-term basis.
• We are not shifting portfolios totally to Value, just putting it in Neutral.

For a long time now I’ve been predicting a recession sometime around 2020-2022.  On October 3rd of this year I posted an article I wrote on BerkshireMM.com titled “Checking My Homework” to challenge my own theory. In it, I wrote:

“The biggest flaw by economists, in my opinion, is that they try to track the entirety of a $19 trillion economy… the stock market turns down before the economy, but no one tries to improve on the methods to track expectations of the economy and to thus be more in line with where it’s going, as opposed to where it’s been. My way is a better mousetrap.”

The markets are pessimistic enough that contrarians like us expect a solid rally through year end.
Q4 of a mid-term year (now) and the first half of an election year (first half of 2019) are, on average, the best three quarters for the stock market. However, a flipped House majority softens that historical tailwind.
The sell-off in October had less to do with perceived election jitters and much more to do with real concerns about tariffs and tightening monetary policy.