- Recent economic data indicates a modest pickup in U.S. GDP growth, but we do not expect dynamic growth to be sustained given the progress already made in the economic cycle.
- Stocks should perform well in this economic environment, but trade policy concerns will likely continue to contribute to market volatility, even as a full-blown trade war remains unlikely.
- Sectors with attractive growth and stability of earnings should outperform going forward, while the most economically-cyclical sectors face risks to meeting elevated earnings expectations.
- Upward pressure on interest rates should continue from the Fed’s measured short-term rate hikes, the recent rebound in inflation, and potential normalization of longer-term real interest rates.
- Consumer Staples exposure, increased to an overweight in Q2, and an overweight to Health Care provide attractively valued earnings stability in this extended economic cycle.
- Overweights to Consumer Discretionary and Information Technology leverage ongoing consumer strength and secular trends, including migration to digital media and payments.
- Avoidance of Energy, Materials, and Industrials limits portfolio reliance on dynamic economic acceleration.
- Avoidance of Utilities and Real Estate reduces interest rate risk.
• Information Technology
• Consumer Staples
• Consumer Discretionary