Intra-Quarter Allocation Update
Last week we updated our models to align with Blackrock’s latest analysis. Below is a high-level summary of the two most recent sets of trades.
For those looking for more detail, I’ve highlighted some of the rationale below (and the full report can be accessed here):
On Tech Companies Continuing to Outperform
Sales, earnings, and forward guidance from some of the largest names in tech have unequivocally crushed even the loftiest expectations. The subsequent price moves higher have been noteworthy – but contrary to conventional intuition – these stocks have gotten cheaper arguably, as their breathtaking prowess at cashflow generation outpaces their current corresponding price appreciation. This adds fuel to our bullishness and persuades us to tilt more aggressively into growth over value. Far from FOMO, this is us simply recognizing the slice of the market with MOJO; reallocating risk into the targeted cohort of stocks we expect will lead the market higher over the course of the year.
On the Fed Lowering Rates
Additional bullish kindling could come from an increasingly unsuspected source: the Fed, whose rate cuts are slightly delayed but not derailed. Despite futures markets’ wobbling confidence and a small choir of Wall Street analysts singing a ‘no cut’ tune, we maintain our high-conviction opinion the Fed will follow through with rate cuts sometime this summer. The confusion from recent months’ inflation data has obfuscated the clear and decisive trend lower. Our reading of the data leads us to think inflation will surprise to the downside and lead policy rates lower, albeit after we may potentially get another month or two of ‘sticky’ headline scares.
On Short-Term Risk vs. Long-Term Appreciation
The biggest risks to our view are if we are wrong about the trajectory of inflation and consequently the Fed. A temporary pullback after such a sharp run also wouldn’t be unreasonable. But the A.I. gold rush is in our view a secular phenomenon. Its impact on productivity (and therefore the economy) should be a stunning catalyst for future growth – and we view this as early innings.
Now for the important disclaimers:
While we may use different models for clients with different preferences and in different situations, the general ideas remain the same.
We manage risk by making small changes such that if your benchmark were to go down 10%, we would expect you to be down somewhere between 7 – 13%. If your benchmark went up 10%, we would anticipate being up 7 – 13%. If your plan or preferences require us to be conservative, we are going to continue being conservative. If your plan and preferences allow us to be more aggressive, we are going to continue being more aggressive. The only time we suggest fundamentally changing the risk profile of a portfolio is in response to a fundamental change to the financial plan.
As always, if you have questions about this or anything else, please don’t hesitate to reach out. If you would like to get a head start on booking our second quarter review, feel free to use one of my calendar links below:
In-Person: https://calendly.com/jswanburg/account-review-in-person
Zoom or Phone: https://calendly.com/jswanburg/remote