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Globally-Synchronized Bull Market Begins in Earnest
The new US administration has started off with a “bang!” – aggressively upending a decades-old economic model that for all intents and purposes seemed to be working just fine. The past successes of our economy and markets were so admired that investors around the globe coined the term “US exceptionalism”– until recently. The dramatic shift in US economic policy has sent shock waves through global financial markets and, in our view, has created a “new world order” for economies and markets that may not be reversed anytime soon. Though these dramatic changes have frightened investors – investor sentiment reached extreme pessimism levels in April – we believe that significant opportunities remain within global stocks, bonds, and a variety of interesting alternatives. As you read this Strategy Update, please keep in mind our opinions are non-partisan in nature, and we are viewing this economic landscape through a lens of research and nothing else.  As we like to say, “Regardless of changing economics – there is always a bull market somewhere.”  Let’s dig in about where the opportunities lie!

Dramatic US Economic Policy Shifts Create New World Order
The drastic shift in US policy has created a “new world order,” so let’s start with the effects on the US economy and its impacts on US based economic sectors and companies. In terms of tariffs, they have a long history of temporarily creating inflationary pressure, which gives way to longer term disinflation as demand softens. On a sector and company level there will be winners and losers which we discuss below – but suffice it to say the long-term robust trends of globalization that many US companies have enjoyed for decades will slow significantly. These protectionist policies, such as tariffs and labor reduction through migrant policies, all have the effect of slowing economic growth and, when combined with a reduced level of fiscal spending (i.e. DOGE), the US economy has the possibility of slowing to a “snail’s pace.” The math doesn’t add up to a recession, but investors should be aware that these headwinds are strong. Fortunately, we have two counterbalances that our research suggests will keep us safely away from economic recession and on a smooth yet tempered pace of US growth. The first of these is the Federal Reserve – they have already insinuated willingness to lower interest rates should they see significantly slower growth. The second counterbalance is the effects of artificial intelligence, which have already proven to enhance the US economy’s productivity growth and, as recently as this quarter, have materially contributed to corporate profitability, an essential element to keeping the economy from tipping into recession and guiding it on a path of economic growth that’s “not too hot” and “not too cold.” This “Goldilocks economy” can be great for certain sectors and individual companies of the US economy, which we highlight below. Though many of these policy shifts have been abrupt, they are focused on reducing our country’s dependency on ever-increasing and dangerously high levels of debt. If these debt levels can be reduced, along with resilient economic growth, we believe our target of DOW 100k can still be reached in the next 7 years.

Dramatic US Policy Shift Cause Positive “Chain Reaction” for Foreign Economic Growth
The US “austerity program” of withdrawing significant financial support from foreign countries has set off a “chain reaction” of increased fiscal spending across foreign regions, most significantly in Europe. In addition, the aggressive US policy shifts (i.e. deregulation) and the fear of slowing economies overseas have ignited more stimulative monetary policies in all regions ex-US. For investors it is critical to understand the powerful force that a combination of significant fiscal spending and lower interest rates outside of the US can have on stock markets. For a good example, one can simply look at the US over the past 20 years, where this combination of government spending and low interest rates – now gone – created an era of such powerful economic growth and stock appreciation that the US was deemed “exceptional.” These very same stimulative policies have now been engaged by foreign countries, which have made a longer-term commitment to keeping them in place. This, combined with the very low valuation of stocks in these regions, is a great set up for a longer-term bull market in these strong developed countries and we see many great opportunities for your portfolio across many sectors which we will discuss below.

Attractive Sectors, Themes, and Companies in a Global Bull Market
Given the very different economic fundamentals in the US versus overseas, investors should choose their sector exposure and individual companies carefully.

In the US this would include areas where moderate economic growth, de-regulation, tariff immunity, and AI are tailwinds – this would include companies in the consumer staples, financial, utility, technology, and telecom sectors as exemplified by Nvidia, Walmart, T-Mobile, and JP Morgan.

In overseas markets that are experiencing the “double barreled” power of stimulative fiscal and monetary policy, investors need to “lean in” to industrial, raw materials, financial, telecom, energy, and technology sectors such as Siemens Energy, HSBC, Icici Bank, Deutsche Telekom, and SAP.

Interest Rates and the Bond Market
In our view, US interest rates are likely to remain in a trading range with a bias towards the downside should the economy weaken more than anticipated. In this scenario, we want to continue to keep your fixed income individual bonds spread out over multiple maturities, or “laddered,” and maintain investment grade credit quality. As always, we will be continually monitoring credit quality to ensure our high-quality intentions.

Risks to Our Synchronized Global Bull Market & Dow 100k Outlook

As always there are significant risks to our bullish outlook for global equities, including US fiscal and monetary policy error, a period of stagflation (low or no growth with rising inflation), as well as a significant downgrade in US credit. As of this writing the Moody’s rating agency has reduced US credit quality, which serves as a warning on this front. There is also the risk of the unknown – or as they say a “black swan event” – which is impossible to predict. It is for these reasons that we always employ our Active Risk Management process, which allows for flexibility in your exposure to stocks, careful management into defensive sectors, and the use of carefully placed stop-loss orders. Together, this process has mitigated the risk of catastrophic losses in past bear markets, and we feel confident it will again in the future.

We hope you find this update helpful. If you have any questions about your portfolio or have experienced a change in your finances, please let us know.

If you have a family member, friend, or colleague who might benefit from our work, please feel free to share this update or have them contact us.

From all of us, thank you for your continued vote of confidence in our work.

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Disclosures: https://bit.ly/3TCc78H