China is the stock market investors love to hate. The conversations are always about what could go wrong and rarely what could, or will, go right. And yet China’s equities have outperformed emerging markets during the past one-, three- and five-year periods. For the past year, we’ve made the case that cyclicals and growth names should be the focus when investing in China.
The so-called FAANG stocks–Facebook, Amazon.com, Apple, Netflix and Alphabet–are up an average of 28.8 percent in 2017 compared to a 7.5 percent gain for the S&P 500. These large-cap names have paced the index’s gains so far this year. Should any or all of these stocks falter, the S&P 500 could quickly lose altitude.
Crude-oil prices collapsed last week due to a combination of fundamental and technical factors.On the fundamental front, the rapid recovery in US oil production has been and will remain the biggest story in 2017. Odds are good (better than 50 percent) that WTI will approach the low end of our anticipated $40 to $45 per barrel price range before stabilizing.
Investors rightly worry that a Le Pen victory could change the euro picture overnight and cause initially hazardous reaction (e.g. European stock markets fall 20-30 percent). Other regions won’t escape such a sell off. Remember that the S&P 500 fell close to 20 percent in May 2011 when fears of Greece exiting the eurozone surfaced. Our view is less alarmist.
Technology and Internet retail companies have largely driven the S&P 500’s run. These stocks, while not yet at the sky-high valuations that prevailed in 1999-2000, are now far from cheap. To protect against the pullbacks history tells us is common, we're adding a hedge to the Portfolio.
Given the uncertainty and volatility in the energy sector, we prefer midstream names that offer the best leverage to volumetric growth stories and have the balance sheet strength to pursue joint ventures with cash-strapped rivals.
Passive management works for some people some of the time. Recognizing how and when it doesn’t work is key for downside protection and proper investment allocation. Plus, we end with an update on two of our portfolio holdings.
In the first of a two-part series, we examine the potential upside catalysts–above and beyond dividends and their growth–for Lifelong Income Portfolio members. These catalysts offer important near-term potential as we enter the second half of the year.
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