June Newsletter

June Newsletter

by Timothy Guthrie on Jul 10, 2019

Project Update 

In May we started on the “financial information update” project.  In this is initiative we are asking you to update information on your financial position (assets and liabilities) and investment time frame and goals.  State regulators want us to document that we are keeping current with client financial needs and over time, investment goals, risk tolerance and finances will change.  This is a new push by regulators.  This update only applied to clients who have been with Bullseye over 3 years and moving forward we will seek to update this information for all clients every three years. 

We sent several batches of mailings out over May and June, and so far, we have received about half of them back. For those who have already returned the update, thank you so much for your prompt action. 

If you have not returned the financial update form yet, please take a few minutes to complete it.  We designed it to be easy to complete, with most information only requiring a check box. We have included a self-addressed stamped envelope.   

If you have a question, please reach out to us.  All our contact information is always at the end of the newsletter.

Market/Performance Update 

May was ugly.  The S&P fell 6.35% and average growth mutual fund fell 7.2%.  The Bullseye composite (an average composed of most Bullseye accounts (excluding 401k accounts and some VERY new clients and net of all fees) fell 3.9%.  The average Bullseye account is not 100% stocks unlike the S&P, so we would expect our results to hold up better in a down market, but still our results were very good.  On average we are still up 12.6% YTD through May.  The S&P is up 10.74% in the same time period, so we are beating the S&P after fees, with less risk, at about 76% stocks on average. Your results will vary, as no account is exactly ‘average.’   To break it down further, some aggressive accounts were still up 16% or more at the end of May and many conservative accounts were up about 10% YTD. 

June as has been the mirror opposite of May (so far).   In May the markets declined on fear of a slowing economy and a protracted trade tussle with China and Mexico.  June saw optimism on those same items, and we gained back May’s losses. Mexico (apparently) quickly offered our President cooperation and that fear vanished.  There were positive rumors about progress with China and even a scheduled meeting between our leaders.  The stock markets are generally back at their recent highs.   
 
Moving forward, I am still positive on the US stock market for the same reasons I have been for some time:

  • Very high rate of employment
  • Low interest rates
  • Low taxes
  • Low fuel costs with less supply risk than in the past

My working proposition:  With employment this high (at record levels) consumer spending should be very strong, and that strong spending will support the US economy and stock market.  Consumer spending is 70% of the US economy, so with 70% of the economy doing great the rest of the economy could even faulter a bit and we would still have growth.  If growth slows, that is a not a big problem for the stock market.  Slower growth likely means continued low interest rates, stable inflation and less risk overall.  The stock market likes moderate growth just fine.

I see a bit more gains if the China issue is ‘settled’ from an import-export perspective.  Estimates of global growth would be raised and many companies would be a bit less shy on forward leaning projections. 

My Observations and Commentary: 

I see risks right now as primarily political.  I hate that politics plays a role in investing at all, but it does.  The current administration, I believe, has had very effective pro-growth and pro-employment policies.  I would loath to see them modified very much. The political season will soon be in full swing.  At this time, I see the election risks shaping out this way: 

Trump Advantages:

  • Incumbency/Fund Raising
  • Shrinking ‘never Trump’ republican faction
  • Strong Economy
  • Possible weak opponent  

Many ‘experts’ predict that incumbents with strong economies always win. Goldman Sachs has already predicted a 2nd term for ‘The Donald’ and others have too.

Trump Risks:

  • Florida #1:  100,000-200,000 Puerto Ricans now live in Florida that did not in the last election.  The politics of that US territory are very left leaning, so most Puerto Ricans must also vote that way. If residing in Florida, they get to vote on the Presidency.
  • Florida #2:  Last year felons in Florida were granted the right to vote again.  1.5 million felons reside in Florida.  While many may not vote, if 10 or 15% of them do, it is my opinion Republicans will have great difficulty winning anything statewide, and ditto for national elections in the state.
  • Philly:  Trump surprised EVERYONE by winning Pennsylvania. The other side will not be caught surprised again.  I believe the democratic turnout next year in Philadelphia may be much larger than last election cycle and could overwhelm whatever advantage Trump will have in mid-state and western PA.  The Democrats own Philly 100%, and they will likely use that asset to full effect.

Trump likely needs to win the close, ‘surprise’ states again, including PA and FL.  I do not see any new states flipping to Trump at this time.  He will likely receive additional votes in states he already won, but this does not help his cause.  He will also likely get additional votes in states he lost the first time but losing New Mexico or Illinois by a smaller margin does not help his cause either.  Someone will work the electoral college math and show how he can win again, without PA., or FL., but I think there is some risk here. 

This matters because a reversal of Trump’s policies is likely negative for economic growth.  It is also possible that Trump losses and the economy continues to do fine.  Perhaps Republicans hold onto the Senate or gain in the house and a more ‘mainstream’ Joe Biden doesn’t radically alter economic policy or make rapid changes.  It is unknown at this point. 

So, the economy is great but political risk may be rising…what to do?  Last month I started decreasing stock exposure for most clients.  90% equity accounts down to 80%, and so on.  I am also evaluating our exposure to certain sectors.  I think software and industrial automation are strong long term with or without Trump, while medical themed investments have additional risk if the administration changes.  

The above commentary is not meant to alarm anyone, the political facts could change fast, and all the current economic ingredients point to possible continued gains in the equity markets, but I want you to understand where I am seeing potential risk.

How to Reach Us 

Main Office:  Tim Guthrie, CFP, 431 Ohio Pike, Suite 214, Cincinnati, OH 45255
Tim@bullseyeinv.com
513-774-3325 (Main/cell)
937-377-1234 (east of Cincinnati) 
 
Ashland KY Office:  Tim Guthrie, CFP, 1505 Carter Ave., Suite 300, Ashland, KY 41101
Tim@bullseyeinv.com
606-939-1196 (Ashland KY)
513-774-3325 (Main/cell) 
 
NE Ohio Office:  Greg Spickard, 2474 Waterloo Road, Mogadore, OH 44260
Greg@bullseyeinv.com 
330-472-3717  
 
Office Manager:  Vickie Corpuz
service@bullseyeinv.com
513-805-8344
800-401-3513 (fax) 
 
Mailing address:  P.O. Box 123, Milford, OH 45150