By: Matt Sapir Ristuccia - PowerPoint Presentation

Slide1

By: Matt Sapir RistucciaChief Investment Officer

Market View

September 2019

Slide2

Overview The market is trying to price the future outcome of two competing forces.Force 1: Negative trends in economic data globally.Force 2: Accommodative central banks that keep interest rates low, support the economy, and keep relative equity valuations attractive. High geopolitical uncertainty means negative economic trends are likely to continue.Conclusion: Near-term remain cautious. Use volatility to your advantage.Before adding risk, look for more pessimistic sentiment (fear), stabilization and steepening of the yield curve, more signs economic data is stabilizing, and positive technical/trend signals from a higher percentage of stocks in the market.

Slide3

Economic Trends: LEILEIs (Leading Economic Indicators) trends remain negative.

Source: FactSet

Slide4

Economic Trends: Global PMIsPMI trends remain negative but are showing some signs of bottoming.

PMI below 50 indicates economic contraction.

The PMI, or purchasing managers index, is a

leading indicator

based on a survey of managers in various industries about their purchase plans.

This is a highly respected economic indicator due to its historical accuracy in predicting the direction of the economy.

Slide5

Economic Trends: PayrollsTrends remain strong, but how much better can it get?

Payrolls report is more of a lagging than leading indicator.

Trends generally remain strong, but there are clear signs of a late cycle job market forming.

Slide6

Policy Uncertainty: Remains HighCEOs hold back Capex when high. Consumers become more cautious when high. Therefore, it is hard to see a quick change in negatively trending economic data when this is high.

Slide7

InflationInflation remains low despite low unemployment. Source: FactSet

Slide8

Global Central BanksLow inflation and negative economic trends has increased the propensity for central banks around the world to be accommodative to increase inflation (prevent deflation) and reverse negative economic trends. This has historically been a positive for the market.

Slide9

U.S. Federal ReserveEquities tend to do well after “The Fed” starts cutting rates.

Slide10

Yield CurveA global composite of government yield curves shows it is inverted. This signals that the bond market is expecting a continuation of negative economic data, and a continuation of accommodative central banks. Source: FactSet

Slide11

Global Slowdown AlreadyGlobally we have been in a slowdown since January 2018, and the market has reacted accordingly (see next slide). Shaded areas represent OECD-Defined Global slowdown periods. Y axis is percentage chance world is in slowdown according to Ned Davis Research’s model.

Slide12

Global Stock MarketThe All Cap World Market Index (ACWI) peaked in January of 2018. The negative trend since then reflects the economic slowdown we have been in. I would expect this to continue with more volatility before the next sustainable market advance. Use that volatility to reposition your portfolio smartly.Source: Yahoo Finance

Slide13

U.S. Stock MarketThe U.S. Total Stock Market (ITOT/Blue) is slightly positive since January 2018 (last peak). This has mostly been driven by a small group of large technology stocks (FTEC, Green). Most U.S. stocks are negative, as can be seen in the returns of the S&P 600 Small Cap Index (IJR, Orange). Source: Yahoo Finance

Slide14

Relative ValuationsLow interest rates keeping relative valuations attractive.

Slide15

Stock Market SentimentSentiment remains neutral despite recent volatility, indicating we may need more fear to get a true buying opportunity (“buy when others are fearful, sell when others are greedy”).

Slide16

Fixed IncomeShort-term investment grade corporate bonds remain attractive. Investors can buy these with a higher yield than 10-year Treasury bonds. Sources: As of 9/12/2019. Approximate yield for investment grade corporate bonds is the current yield of Blackrock’s iShares ETFs with corresponding maturities. Other sources used are FactSet and Morningstar.

Slide17

Long-Term Bull: 1Despite near-term risks, we remain in a long-term bull market. They tend to last 20 years.

Slide18

Long-Term Bull: 2Historically, we don’t see corrections over 20% without some combination of an aggressive Fed, Excess Valuations/Financial Bubbles, or a Commodity/supply side cost shock. All are unlikely at this time.Source: JP Morgan

Slide19

Long-Term Bull: 3Close to longest, but slowest, expansion in history. The long and slow expansion helps explain why after 10 years we are NOT seeing excess valuations/bubbles, or an aggressive Fed.The fear of 2008 remains a “wall of worry” for many investors, supporting the secular bull market. Healthy fear keeps bubbles from forming.

Slide20

Long-Term Bull: 4Demographic trends support the long-term bull market thesis. Demographic trends are only starting to turn bullish for the economy.Notice favorable and unfavorable demographics was coincident with last long-term bull (1980-2000) and bear (2000-2009). See blog on these trends. www.argentwm.com/blog-2 Bull Markets = Bear Markets =

Source: Ned Davis Research, FactSet

Slide21

Long-Term Bull 5: U.S. ConsumerConsumption is about 70% of U.S. GDP. Consumer strength limits the potential downside of GDP in the U.S. and aligns with data showing market corrections tend to be limited in long-term bull markets.

Slide22

AppendixGDPTrade WarValuationsDebt Update

Slide23

U.S. GDPReal GDP (Nominal GDP minus Inflation) remains positive and on long-term trend, but has come down recently.

Slide24

Trade DisputesRead Blog for long-term assessment.Bottom line: Risks and uncertainty likely to linger into 2020.An uncontrolled trade war remains unlikely. Near-term assessment of trade dispute: Trump wants to balance a message that plays to his base supporters while maintaining a strong economy and market. That balance is difficult to achieve, especially if he wants to deal with the complex issue of intellectual property transfers.Both leaders want to remain strong and authoritative, so giving into threats is difficult. China knows Trump is up for re-election. They could hurt his chance of getting re-elected by escalating the trade war. The problem is this would hurt their own economy, so this is unlikely.

Slide25

Global ValuationsSource: JP Morgan

Slide26

S&P 500 ValuationSource: JP Morgan

Slide27

Debt Update 1Despite high debt/GDP in the U.S., debt service remains below average due to low interest rates. If interest rates rise it is likely due to a strong economy, which increases tax receipts and inflation; this helps offset the debt burden just as low interest rates are helping with debt service costs.

Slide28

Debt Update 2Many have raised anecdotal concerns about corporate leverage. However, corporate leverage remains quite reasonable.

Slide29

Matt Sapir Ristuccia, MBA, CFAChief Investment OfficerMatt is Argent’s Chief Investment Officer (CIO).  Matt joined Argent in 2011 as an Analyst.  In 2013 Matt was named Director of Investment Research, and in 2017 Matt was named Co-CIO before being named CIO in 2019. As the CIO, Matt leads all aspects of Argent’s investment programs and processes.  This includes setting the direction and oversight of internal and external asset allocation strategies, equity strategies, fixed income strategies, and private equity and private real estate investments.  Matt is also the Portfolio Manager of Argent’s Global Value Stock Strategy and Hedge Fund Strategy. Matt joined Argent in 2011 after graduating

summa cum laude (top 5% of class) from Olin Graduate School of Business at Babson College where he also received The Student Leadership Award.  Matt completed all three levels of the CFA program in 2011 as well.  The CFA Designation is globally recognized as the highest set of credentials in the investment management industry.  In 2017 Matt completed the Investment Management Workshop at Harvard Business School (HBS).  Started in 1968, this selective executive education program brings together leading HBS faculty with leading investment executives from around the world and focuses on investment and business strategy. 

 

At Babson Matt was selected to help manage Babson’s Endowment specializing in healthcare stocks.  During this time Matt worked closely with the head of this program who was the former Head of U.S. Equity Research at Fidelity.  Matt received his B.A. from Wheaton College where he was a First Team All-New England soccer player and helped lead the team to a final four appearance in 2003.  Before attending Olin and after graduating in 2005, Matt worked with his Grandfather, Louis Sapir, an esteemed discipline of Benjamin Graham, “the father of value investing.”

Email:

mristuccia@argentwm.com

BIOGRAPHY

Slide30

DisclosuresIMPORTANT DISCLOSURE INFORMATIONOne-on-One Presentation Only Argent's management fee will differ based upon the amount of assets a client places under Argent's management per Argent's management fee schedule set forth on Part 2A of its Form ADV (i.e., the greater the amount of assets, the lower the management fee).  Please Note: Information in this presentation should not be construed as investment advice. Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance will be profitable, equal the performance results reflected, or equal the corresponding historical benchmarks or blended benchmark indices. Historical index performance results for the comparative indices reflect reinvested dividends, but do not reflect the deduction of an investment management fee, the deduction of which would have the effect of decreasing indicated historical index performance results. The historical performance results are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual client or prospective client in determining whether the three portfolios performance meets, or continues to meet, his/her investment objective(s). Please Also Note: (1) A description of each of the comparative indices set forth above; (2) Performance results do not reflect the impact of taxes; (3) It should not be assumed that account holdings will correspond directly to any such comparative benchmark index; and, (4) comparative indices may be more or less volatile than the three portfolios.

For reasons including variances in account holdings, variances in the investment management fee incurred, market fluctuation, the date on which a client engaged Argent’s investment management services, and any account contributions or withdrawals, the performance of a specific client's account may have varied substantially from the indicated portfolio performance results.

In the event that there has been a change in a client's investment objectives or financial situation, the client is encouraged to advise Argent immediately. Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investments purchased and/or investment strategies devised or undertaken by Argent), will be either suitable or profitable for a client's or prospective client's portfolio.

All performance results have been compiled by Argent and have not been independently verified. Information pertaining Argent’s investment advisory operations, services, and fees is set forth in Argent’s current written disclosure statement, a copy of which is available from Argent upon request.

Any Questions: Argent's Chief Compliance Officer, Richard D.

Kahn, remains available to address any questions that a client or prospective client may have regarding the Strategies results.