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By Prabha Ram - January 23, 2019
As we begin 2019, investors are being pummeled by negative news and data points on politics, trade, Central Bank policy, oil prices etc. Economic data such as low inflation, positive employment trends and solid corporate profits are being drowned out. I would like to point out that the market backdrop is not all good, but neither is it all bad.
One of the unknowns in the new year is whether the U.S. Federal Reserve (Fed) will be overenthusiastic with rate hikes and negatively affect market liquidity. Predictions are that the Fed will raise rates one or two times in 2019. On that topic, I go back to something Fed Chairman Jay Powell said in a speech recently. He suggested that if you’re in a room full of furniture and the lights go out, you just slow down and find your way—you don’t panic.
While we evaluate all market movements and their causes, I’m optimistic about economic conditions in the United States, as well as the opportunity to find or hold on to well-run companies with durable business models at attractive prices.
Check out my 2019 outlook video to find out more—including what I look for in a company before investing in it.
We believe that 2019 will be a year where we will have opportunities to pick up good, quality businesses at valuations that are well below their intrinsic values.
2019 should be an interesting year. 2017 was the absolute Goldilocks. It was global growth everywhere. Fiscal policy was mostly accommodative. Monetary policy was accommodative. And every country pretty much that you looked at was, generally, doing well.
2018 started out that way, but then we started seeing policy getting tight in some places. The U.S. is one example. And then we had trade tensions come up, as well. Now fiscal policy was still accommodative. We had the huge tax reform here in the U.S. But then we haven't seen a big pick up in CapEx (capital expenditure). It is starting on the edges.
So as we enter 2019, there are still these issues with tensions in the market—but the economic data, if you look at the US and elsewhere in the globe, still looks very strong. So here we are. It's a mix of good and bad. It's not all good; it's not all bad.
Obviously the bad, which is first, is the political risk. And we've seen some of that with oil prices fluctuating and we've had some resolution there. That's number one. Trade tensions here in the U.S., between the US and China, which is a big trading partner. And thirdly, just the cadence of what happens with monetary policy in the U.S.
If I can paraphrase Federal Reserve Chair Powell at the New York Economic Club recently, he said, “We were going full-speed through a furniture store. And the power goes out. You just slow down, and you feel your way a little bit. It doesn’t mean you panic.” I think that’s the kind of environment we’re looking for.
I’m optimistic about just the good economic conditions here in the U.S.—particularly the U.S. consumer. It's 70% of GDP, employment is the highest it's been in a very long time. And we've seen employment across the board. So those are all positives.
Companies are flush with cash because the tax reform freed up a lot of cash for them. All those are positives and, ultimately, those will be the drivers of markets in the long run.
It comes down to navigation, which is looking for companies that have enduring businesses and that have pathways to growth irrespective to the macro environment. And good management teams that will look at their business processes and dial them up or down, based on what the conditions are. Those are the companies we are looking to invest in.
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Portfolio Manager Miles Lewis explains how his team seeks small-cap companies that may benefit from shifting trends, regardless of the trade war.
Trade war aside, Sr. Portfolio Manager Patricia Ribeiro is still finding opportunities to invest in China. Find out how in her latest quarterly update.
Portfolio Manager Prabha Ram is focusing on companies that have sustainable growth in their mix as she looks at investments for the rest of 2019.
Portfolio Manager Prabha Ram is seeing a mix of good and bad economic indicators heading into 2019. Where is she finding opportunities in the noise?
January 23, 2019
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.