The U.S. economy, GDP growth, consumer income, employment statistics, and corporate profits are very good.
U.S. consumer spending is strong, and corporate profits for almost all economic sectors, including the consumer sector, are booming. Real GDP growth for the second quarter of 2018 was just revised upward slightly to 4.2%, and the stock market is reflecting the past and expected future wave of good news by continuing to move ahead aggressively.
We continue to be bullish on U.S. stocks, especially disruptive sectors such as cybersecurity, social media, cloud computing, software as a service, and travel services. We also like companies in financial services that are introducing new technologies such as Mastercard [NYSE: MA], Visa [NYSE: V], and PayPal [NYSE: PYPL], medical services and equipment and selected biotech companies such as United Healthcare [NYSE: UNH] and Celgene [NASDAQ: CELG] and companies that are growing their dividends.
Europe: Avoid European Stocks and Bonds
In our view, Europe is in deep trouble; many European banks have not improved their capital to become more stable. The problem of Turkey and the prospect of a re-acceleration of mass immigration mentioned above is a real concern for economic policy. Will Europe have to engage in massive borrowing to support new immigrants? Will southern European countries leave the EU now that the subsidies and support they have enjoyed will be lessened as wealthier northern European countries have to use more resources at home?
Emerging Markets: Not Much of Interest
South America remains under pressure due to the weakness of commodity prices. The strong U.S. dollar is the main reason that commodity prices remain weak. We do not see inflation growing, and although the U.S. and Indian economies remain very strong (with India growing at above 6%) and the Chinese economy continues to grow at above a 5% rate; China is growing much less rapidly that in the past few years. The Indian market is slowly advancing in U.S. dollar terms, and the Chinese market is in a bear trend.
Clearly, as we have been stating for months, money from all over the world is seeking a safe haven in the U.S. dollar and U.S. stocks as an alternative to problematic markets in Europe, Latin America, and parts of Asia. We remain bearish on most of Asia, with the exception of India. Even India has a hard time doing well in U.S. dollar terms with a rising dollar trend.
As it has on many investment areas, the rising dollar has put pressure on gold. The pressure has been exacerbated by the need of some badly managed countries, such as Turkey and Argentina, to sell gold to provide liquidity in their economies.
For our review of crypto markets and blockchain developments, please see our lead section above.
Please note that principals of Guild Investment Management, Inc. (“Guild”) and/or Guild’s clients may at any time own any of the stocks mentioned in this article, and may sell them at any time. Currently, Guild’s principals and clients own CELG, MA, PYPL, and UNH. In addition, for investment advisory clients of Guild, please check with Guild prior to taking positions in any of the companies mentioned in this article, since Guild may not believe that particular stock is right for the client, either because Guild has already taken a position in that stock for the client or for other reasons.
Thanks for listening; we welcome your calls and questions.
Wealth Builder Dividend Portfolio Management
In January 2016, some of our clients who are retirees asked us if Guild could offer accounts that would hold income-producing securities, and yet would not suffer like bonds as interest rates rose in 2016 and beyond. (Guild had recently notified clients to expect several years of interest-rate increases and bond-price depreciation.)
Guild selected 15 to 20 dividend-paying common and preferred stocks that we believed could be used to create income for clients during a period of rising interest rates. We picked stocks which paid dividends well in excess of the return on 10- and 20-year U.S. Treasury bonds, and which we believed would increase their dividends in a rising interest-rate environment. Except in the case of a major global calamity, we anticipated very low portfolio turnover, thus minimizing taxation risk.
The results have been good and while losses with stocks are always possible, we anticipate that results will continue to be good in the rising interest rate environment that we see ahead. For further information, please contact Aubrey Ford (email@example.com) at Guild Investment Management.