The Trade War
Stocks marched higher in November, driven by optimism for a “Phase One” trade deal with China and indications suggesting continued accommodative monetary policy from the Fed. Regarding trade, we view signs of cooperation between China and the US as a positive, but think it is important to remember that the relationship is incredibly complicated and is likely to remain unpredictable and adversarial in nature for a long time.
As recently as September, we noted a bullish factor for stock prices was an appearance of widespread pessimism about the economy and equities. Markets often reflect current positioning and move against popular opinion. Indeed, markets climbed this wall of worry and posted strong returns for both October and November, pushing large cap US stocks to record highs. Now, it feels sentiment has swung to the other side, with many recently bearish market participants throwing in the towel and piling back into stocks. Sentiment is just one factor, but our view is it is no longer one to be excited about.
US Growth Stocks
As money returned to stocks, a disproportionate amount funneled into what has felt best recently – specifically US growth stocks with a tech focus, further stretching the valuation gap from both value and international stocks. As these distortions grow, we see the expected forward-looking benefits of increased regional, style and sector diversification also increasing.