Newsletter Q3 2019

We don’t have a dour view of stocks. Rather than try and call the economic cycle, we continue to invest in companies with strong free cash flow, strong business models, and conservative balance sheets. While we think there may be an earnings lull, and we worry about trade wars and Washington missteps or non-steps, the historically low unemployment rate around 3.5% with modest wage growth, should provide a ballast for the overall domestic economy. Furthermore, the weakness in manufacturing is relatively small compared to the strong consumer segment of economy which accounts for two-thirds of economic activity. In many economies, and in the U.S. in particular, households are enjoying low unemployment, rising wages, and savings from refinanced mortgages. With household wealth and incomes in relatively good shape, we believe the risks to the broader economy have fallen.

As a firm we have lowered our return expectations across stocks and bonds. Our dimmer capital market assumptions will result in clients’ target returns being slightly lower going forward. We are carefully reviewing how these changes affect clients’ financial plans, and we will be reviewing these results in detail with you in our meetings and calls over the next 6-12 months. We will continue to reflect—to be thoughtful and flexible as we deal with interest rates and political conditions we have not seen in our careers. As ever, we remain focused on navigating risks and identifying opportunities.

Quarterly Market Review: July-September 2019

The third quarter was full of ups and downs for stocks, much like the second quarter. Stock values moved in response to the rhetoric from the participants in the trade war between the United States and China. The Federal Reserve lowered interest rates two times during the quarter. More new jobs were added, but at a reduced rate, while wage growth continued. Manufacturing and industrial production remain muted, influenced, in part, by the waning global economy. Nevertheless, consumers were undaunted by economic developments, spending at a steady rate throughout the quarter.


©2019 Broadridge Investor Solutions, Inc.

Quarterly Market Review: April-June 2019

The second quarter was full of ups and downs for stocks as investors had plenty to worry about. Throughout the quarter, the trade war between the United States and China ebbed and flowed as news continuously changed from positive to negative. Employment was steady and the unemployment rate remained low, but wage growth was moderate at best. Manufacturing and industrial production hit a snag during the second quarter, as did business fixed investment.


©2019 Broadridge Investor Solutions, Inc.

Newsletter Q2 2019

In this moment, we are witnessing an incredibly long run of prosperity in the U.S.. Certainly one could argue that it is not as shared as it had been in past economic expansions. And it is also aided and abetted by massive government debt (not more than most other nations though) and an accommodative, if not loose, Fed printing money whenever nudged. Companies continue to grow earnings, pay low taxes, return cash to shareholders (dividends and buybacks), and provide shareholders competitive returns. Unemployment remains the lowest it has been in decades and inflation is muted. Household net worths are growing, and consumers have reasonable debt levels given their income.

Shorepoint’s core philosophy is to manage diversified portfolios of quality, reasonably valued assets based on your investment objectives and risk tolerance. This has and will continue to be a successful investment strategy over the long-term. We seek to take advantage of opportunities as they arise and generate attractive long-term returns to help our clients reach their financial goals. As always, we are available to discuss your concerns and answer your questions.

Newsletter Q1 2019

Overall, Shorepoint is constructive on the current investment landscape. Low interest rates, solid corporate margins, significant corporate cash returned to shareholders (dividends and buybacks), low inflation and steady economic growth have driven strong equity returns since the Great Recession. Valuations as measured by price/earnings multiples are in line with historical averages and are not excessive. We continue to invest in a variety of investments across asset classes that potentially offer sound long-term, if not spectacular, returns to patient investors.

As contrarians, we have added and continue to add to international, developed market equities and emerging market equities/bonds, which we feel are still undervalued even with the 2019 rebound. We are employing a “buy the dips” approach by adding to high-quality, attractively-valued companies that have robust cash flow, strong earnings growth prospects and solid balance sheets. We are investing more in the underperforming healthcare sector which has been in the cross hairs of politicians and allocating to selective special situations that offer favorable risk-adjusted return potential. Individual stock price volatility enables us to perform tax harvesting in companies that are temporarily depressed but that we feel are excellent long-term investments such as CVS Health and Kraft Heinz.

The bond side of our portfolios has rebounded strongly with the Fed moving to the sidelines on further interest rate increases in the near-term. The Fed’s policy change has allowed us to reinvest some of our client’s money market balances into higher-yielding bonds. Overall, our clients continue to benefit from our diversified approach to producing income by investing in Emerging Market Bonds, Floating Rate Loans, REITs, Preferred Stocks, etc. instead of investing just in U.S. treasuries.

Shorepoint’s core philosophy is to manage diversified portfolios of quality, reasonably-valued assets based on your investment objectives and risk tolerance. This has been and will continue to be a successful investment strategy over the long-term. We seek to take advantage of opportunities as they arise and generate attractive long-term returns to help our clients reach their financial goals. As always, we are available to discuss your concerns and answer your questions.

Quarterly Market Review: January-March 2019

Following a tumultuous close to 2018, stocks enjoyed a robust January. Positive feedback from ongoing negotiations between the United States and China, coupled with strong job growth, low inflation, and stable interest rates, helped fuel investor confidence that pushed the major benchmark indexes to levels not seen in 30 years — despite a partial government work stoppage. Each of the indexes listed here posted notable gains, led by the small-cap Russell 2000, followed by the Nasdaq, S&P 500, Global Dow, and the Dow.


©2019 Broadridge Investor Solutions, Inc.

Newsletter Q4 2018

Shorepoint believes that this is a buying opportunity and not the start of a bear market but a “normal” pullback as part of a secular bull market. Based on our assessment, we don’t anticipate a domestic recession and are adding about 5% to equities in our client accounts. However, we will first consider your cash needs, risk tolerance, etc. before increasing equities.   Please read on for more details!

Below you will find a variation of the missive we sent out just before Christmas. We believe the majority of the content still pertains, but we have adjusted and added additional comments and information.

The U.S. stock market hit all-time highs on September 20th. Since that time the market (S&P 500 Index) dropped almost 15% and finished 2018 down 4.4%. During this correction, over 70% of the stocks in the S&P 500 Index were down over 20% (traditional bear market territory) and the average stock was down 29%. Domestic mid-cap and small-cap indices finished down over 11% for the year while international, developed and emerging market, were down over 13%. Bonds slightly rebounded in fourth quarter with major indices barely in positive territory for the year.

Quarterly Market Review: October-December 2018

Trade wars, midterm elections, and market volatility highlighted 2018 for investors. In an attempt to reduce the trade deficit, President Trump pushed to rewrite trade agreements with several long-time trade partners of the United States. Trump amended the trade agreement with South Korea, imposed tariffs on steel and aluminum, and renegotiated the North American Free Trade Agreement (now called the United States-Mexico-Canada Agreement). But the trade war with China has been the most compelling and impactful, not only to the countries directly involved, but to much of the global economy. Reciprocal tariffs were imposed by each economic giant throughout the year. There was a temporary truce achieved following the Group of 20 summit, but there was no definitive agreement reached.


©2019 Broadridge Investor Solutions, Inc.

Quarterly Market Review: July-September 2018

The third quarter proved to be very strong for domestic stocks. July saw the major benchmark indexes listed here enjoy robust gains, led by the large caps of the Dow and S&P 500. Global stocks also rebounded in July, with the Global Dow surging 3.76% by the end of July. Favorable economic indicators and encouraging corporate earnings reports were enough to quell investor concerns over the continuing saga that is the back-and-forth trade tariffs between the United States and China.


©2018 Broadridge Investor Solutions, Inc.

Newsletter Q3 2018

While the trade wars and accompanying global tensions that follow such a policy are troubling, we are hopeful that the current administration is being political ahead of the mid-term elections and hoping to activate its base. A little softening in rhetoric and trade policy or better trade deals would go a long way to alleviating the troubling policy ramifications of picking fights with our economic partners. Given the history of the current President, it would seem likely that he would be “transactional” and give the markets what they want.

In addition, we would argue that growth is still growth, although the most significant gains of the cycle may be behind us. That does not mean that we can’t find attractive opportunities for capital in both stocks and bonds and earn patient investors competitive returns in the months and years to come. We do NOT believe the domestic economy is headed for a recession in the near-term. Fiscal stimulus provided by tax reform should continue to fuel economic growth and enable companies to grow earnings in 2019. In addition to the domestic opportunities we see, the poor performance of international and emerging markets may produce long term vindication for those of us who have remained disciplined and diversified, despite the short term drag those positions have had on recent performance. We also remain positive on our outlook for dividend paying companies with defendable business models that are benefiting from secular growth and have the ability to generate strong cash flow.

The bond side of our portfolios was hurt by Fed rate increases but bonds should eventually settle in and provide a higher income level for more moderate and conservative investors. However, our clients continue to benefit from our use of a diversified approach to fixed income instead of investing just in U.S. treasuries. Other bond sectors, such as floating rate leveraged loans, actually produced positive returns and have higher yields than Treasuries with less volatility. Also, with money market yields increasing, we may utilize money market investments as an alternative to some of the bond allocation which will reduce portfolio risk and volatility.

As contrarians, we are adding to attractively valued international developed market equities, and emerging market equities/bonds which have not performed well in 2018. We continue to advocate a “buy the dips” approach and will add to high quality, attractively valued companies that have robust cash flow, strong earnings growth prospects and solid balance sheets.

Overall, Shorepoint’s core philosophy is to manage diversified portfolios of quality, reasonably valued assets based on your investment objectives and risk tolerance. This has and will continue to be a successful investment strategy over the long-term. We seek to take advantage of opportunities as they arise and generate attractive long-term returns to help our clients reach their financial goals. As always, we are available to discuss your concerns and answer your questions.