This year has been characterized by the dichotomy of a global manufacturing slowdown — exacerbated by the U.S.-China trade war — offset by a still healthy U.S. consumer, low U.S. unemployment levels, and employment growth in key markets worldwide. Most notably, 2019 has seen the persistence of negative rates in the Eurozone and a dramatic drop in the U.S. ten-year bond yield.
Adding to this mix, there is now a good chance that impeachment proceedings will occur in the House of Representatives by Thanksgiving. If impeachment by the House occurs, it goes to the Senate for a trial presided over by Chief Justice Roberts and requires a two-thirds vote for impeachment. The noise of an investigation and trial may not be good for consumer confidence as we head into the holidays.
It is possible that a China trade deal or truce of some sorts may become more likely as the Administration is undoubtably mindful of the economy heading into an election year. In the end, it is unlikely that we are staring at major structural changes though we could see some welcome tariff relief.
Our approach through this all is to stick to good businesses, grow the EPS and cash flow stream, and pay close attention to valuation. As always, we will try to capitalize on any volatility with active management and our mindset that our clients’ capital is scarce capital. That is, each day we work to determine what is the best use of that capital based on our view of fundamentals, valuation and alternatives, all within the context of our concentrated methodology and a hard cap of owning no more than 25 stocks.
To read more, download the full Third Quarter 2019 Investment Perspective.