Domestic Markets – 2Q19 Review
The U.S. equity market (defined as the S&P 500) incurred a roller coaster of sorts in the second quarter, as stocks moved higher in April, sold off in May, only to set record highs in June. Company-specific fundamentals took a backseat to macro events such as heightened trade tensions and a more accommodative stance by the Federal Reserve. As we reach the halfway point of 2019, stocks have recovered from the double-digit losses sustained in the fourth quarter of 2018 – another illustration of the underlying resiliency that has been a hallmark of the current bull market.
On a style basis, growth stocks once again held the upper hand vs. value in the quarter. The duration and magnitude of the growth-over-value trend have started to raise questions about the overall validity of value investing – which we view to be a bit extreme (and may be a positive contrarian signal). In Cambiar’s opinion, the basic premise of value investing is very much alive and well; value’s underperformance in the current cycle is largely a result of low inflation and low rates. Not unlike previous discussions regarding active vs. passive investing, one’s view toward growth and value should not be an either/or discussion. Rather, we believe growth and value strategies both have a place in a long-term asset allocation structure.
There was a classic ‘bad news is good news’ response by investors in the quarter, as concerns about the impact of trade on corporate earnings were offset by a U-turn in monetary policy expectations. After implementing four rate hikes in 2018, the U.S. Federal Reserve has since shifted from tightening to easing mode – indicating the potential for rate reduction(s) in the coming months. Central banks around the world indicated a similar willingness to make accommodative moves in an attempt to stimulate growth in their respective economies. Within the U.S., it is debatable whether the data supports the need for easing, as employment is at 3.6% and trend growth remains intact. That said, the uptick in geopolitical risk and downshift in corporate capital expenditures threaten to curtail the expansion. Should the Fed follow through with a rate cut(s) in the back half of the year, the bigger question is what measures policymakers will have at their disposal when the next down cycle hits?
Certain information contained in this communication constitutes “forward-looking statements”, which are based on Cambiar’s beliefs, as well as certain assumptions concerning future events, using information currently available to Cambiar. Due to market risk and uncertainties, actual events, results or performance may differ materially from that reflected or contemplated in such forward-looking statements. The information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or endorsement to buy or sell any security, investment or portfolio allocation. Securities highlighted or discussed have been selected to illustrate Cambiar’s investment approach and/or market outlook. The portfolios are actively managed and securities discussed may or may not be held in client portfolios at any given time, do not represent all of the securities purchased, sold, or recommended by Cambiar, and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios. Statistics/charts are based upon third-party sources that are deemed reliable; however, Cambiar does not guarantee its accuracy or completeness. As with any investments, there are risks to be considered. Past performance is no indication of future results. All material is provided for informational purposes only and there is no guarantee that any opinions expressed herein will be valid beyond the date of this communication.