As the week comes to an end, there are two items that are worth noting. The first is regarding our economy and continuing escalation of global tariffs. The second is a sector rotation shift that has been identified in U.S. markets.
On Monday, President Trump announced that the administration will identify $200 billion in Chinese products for an additional tariff of 10 percent. It was also said that another $200 billion worth of goods would be considered if China retaliates with a tariff of their own. The president argues that the Chinese are stealing our intellectual property and conducting policies that are detrimental to the U.S.
If this was not enough, we now have our European counterparts retaliating against the metal-importing tariffs earlier this year. The EU approved a 25 percent duty on $3.2 billion of U.S. products that are targeted to hurt companies such as Harley-Davidson Inc. and Levi Strauss & Co.
Jerome Powell, the Federal Reserve Chairman, has stated that the concern on global tariffs has been rising and said, “…we’re hearing about decisions to postpone investment, postpone hiring.” The chairman was referring to the possible reaction in the private sector.
Although we don’t believe global tariffs to be an immediate threat, if the escalation continues, it certainly can slow down global growth. Our investment team will continue to monitor the situation as to how it will affect the U.S. economy, the world markets and our investment strategies.
As a firm, we have been pessimistic on the Consumer Staples sector for the past year having sold all core staple positions in 2017. At the same time, we were very bullish on growth stocks and we have been overweight the Information Technology Sector. In addition, we have been underweighted the Health Care sector during that same period. However, in recent days, our screens have been giving us a reason to change course. After a thorough analysis, the investment committee has decided to make a sector change. It was decided to increase both the Health Care and Consumer Staples sector exposure and decrease high growth technology holdings in the portfolio.
The Consumer Staples sector, year-to-date is among the worst performing sectors; however, it has been among the best sectors in the last couple of weeks. Our firm philosophy is to buy best in breed companies that are trading at a discount to fair value. We have identified several stocks that meet our criteria and will be incorporated in our Core investment strategies.
As the investment environment changes, we will continue to identify opportunities for our investors.
[i] Close to a Peak’ U.S. Growth at Risk on Trade Threats, Housing. Bloomberg.
[ii] Trump Calls China Trade a U.S. Security Threat as EU Hits Back. Bloomberg.
[iii] Powell Says Trade-Policy Concerns May Delay Investment, Hiring. Bloomberg