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Current Views

Latest Market Commentary

Market Overview

Economic conditions in China appear to be improving.  In March, the manufacturing PMI returned to a level indicative of expansion for the first time in 4 months, and factory output reached its strongest level since late last year.  While April’s manufacturing PMI was modestly below analyst’s expectations, it too remained above the expansion threshold.  Industrial production and retail sales showed healthy gains during March and exceeded consensus projections.  We think that these improvements are significant as China’s economic growth has decelerated every year since 2010.  If growth in the world’s second largest economy were to stabilize or reaccelerate, we believe it could positively impact its trading partners and capital markets across the globe. 

We attribute some of China’s recent strength to a significant tax cut implemented earlier this year, as well as liquidity injections from the country’s central bank.  A successful trade deal with the US could give an additional boost to China’s growth profile.  In this regard, we note that the two countries have reportedly agreed on enforcement mechanisms to police a potential trade pact.  We believe this is meaningful as this issue had previously been a point of contention. We continue to expect the US and China to reach an agreement on trade, as it is in the best interest of both sides to do so, though timing is uncertain particularly in light of the events of the last few days.

In contrast, the European economy remains weak.  The manufacturing PMIs for both March and April came in below 50, indicating that the sector is contracting.  In its commentary, survey data provider Markit noted that “the economy remains in its worst growth spell since 2014.  Manufacturing reported a further contraction and service sector growth cooled.”  Moreover, GDP projections for Germany and Italy have recently been revised down.  The Italian government now anticipates growth of just 0.1% this year. It appears that the ECB is closely watching these conditions, and is attempting to counteract them by delaying interest rate hikes and rolling out a 3rd round of its targeted long-term refinancing operations (TLTRO), which are loans to financial institutions at attractive rates that are designed to stimulate lending to the real economy.  We are encouraged by the ECB’s efforts though the challenged European economy remains a risk to capital markets in our view. 

Outlook

We believe that the US economy appears healthy as evidenced by the recently released Q1 GDP report, which came in at a stronger than expected 3.2% annualized growth rate.  There are reasons to believe that solid domestic growth may be sustainable, given the healthy state of the labor market and benign financial conditions.  Perhaps most significantly, this growth is being accompanied by a general absence of inflationary pressures, which has enabled the Fed to remain dovish.  In our opinion solid growth and an accommodative Federal Reserve typically bode quite well for stocks.  Moreover, first quarter earnings are exceeding expectations.  Investors were quite cautious heading into earnings season, with consensus analyst projections calling for a low single digit year-over-year decline in S&P 500 earnings.  As of this writing however, with approximately 80% of S&P 500 companies having reported first quarter results, aggregate earnings are up 3.2%. 

We believe there are reasons for caution.  Stocks have been on a strong run, having moved up approximately 25% since last December’s low, but the recent breakdown in the US-China trade talks may create choppy market conditions in the near term.  International economies remain challenged, though we suspect the worst may be behind them.  Finally, as the 2020 US presidential election draws closer, we expect to hear a lot of potentially market-moving rhetoric on a number of important issues including health care, taxes and climate change.  Market volatility could pick up as the candidates debate policy and make stump speeches on these topics.   Despite these risks, we view conditions as generally favorable for investors in equities.

 

 


 

This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages equity, fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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