Much like last year, growth stocks are leading the pack.
Happy Summer! Beaches, barbeques, camp, fireworks, lightning bugs are some of the best things, in my view, that come with summer. Vacation too.
I was fortunate to spend the last days of June and first days of July with my family in Italy – 16 of us in total went to celebrate Joe Sr.’s upcoming 80th birthday. We visited several towns along the Amalfi Coast, met some wonderful people, ate fantastic food, and ended our trip in Rome.
I was awestruck by Rome, which I have been lucky enough to have now visited three times in my life. I am not sure if it was seeing the city through my children’s young eyes, through my own now middle-aged eyes or some combination of the two. Whichever or whatever, the history boggles the mind. How they even thought to build, much less execute the construction of the structures is fascinating. The Colosseum, the Pantheon, St. Peter’s Basilica, the Trevi Fountain, and the Forum were all highlights. Rome was the world’s superpower for a thousand years because the ancient Romans understood long-term investment!
The summer also holds a special place in the hearts of cycling fans worldwide, as it brings the sport’s most famous race, the Tour de France. For those that are unfamiliar with the event, the Tour de France is one of cycling’s three Grand Tours. Each July, 20+ teams comprised of nearly 200 of the best cyclists in the world compete in the race, which spans 23 days and covers more than 2,000 miles. With 23 days of televised coverage, you’re likely to catch at least one of the various stages of the race. If you do, you will notice that riders tend to pack together in groups, in cycling parlance known as the “peloton.” Winners will pull ahead of the peloton, while riders who struggle with the grueling pace or experience equipment issues will lag behind.
This same principal can be applied to the markets, with the peloton represented by the broad market. As this large group of hundreds of stocks winds its way around curves, through valleys and over mountains, many stocks will behave quite similarly. However, there will be stocks and sectors that break away from the pack for sustained periods of time, others that fall well behind the pack, and a few that inevitably fall out of the race altogether. Our job as investors and risk managers is to identify the stocks, sectors, and asset classes that have the strength to pedal beyond the comfortable confines of the peloton and avoid those that lag behind or fall out of the race.
The first half of 2018 has been interesting for us to navigate. Much like last year, growth stocks are leading the pack, outperforming the broad markets and value stocks. The two growth-oriented strategies that we manage have fared quite well thus far this year. The Biondo Focus Strategy – our most aggressive – is up 16.09% through June 30th while the Biondo Growth Strategy is up 13.86% – both after fees. Meanwhile, the standard benchmark for US equities, the S&P 500 was up only 2.65% in the first half of the year. On the other hand, the Biondo Dividend Strategy was down 6.07% after fees during the first half.
From a relative strength perspective, some observations from the first half of 2018:
• US Equities continued to be the best performing asset class;
• International Equities did not perform well, particularly in Emerging Markets;
• Within domestic equities, small companies outperformed large cap companies and growth outperformed value;
• Technology was a leading sector, with Energy improving greatly during the 2nd quarter.
Volatility was more muted during the second quarter relative to earlier in the year. While markets have struggled to regain their highs posted in late January, on balance markets have remained calmer than we expected. Valuations are much better than was the case at those highs and earnings growth has remained robust. While we are at the very beginning of earnings season, earnings growth should once again show impressive strength. Current estimates for growth are 20%. While down slightly from the 25% level seen in the first quarter, this would still mark the second strongest quarter since 2010. Tax cuts remain an important driver of strength, but sales growth also appears to be boosting results. We expect future guidance to be closely parsed by investors to understand any impact of recent trade issues on capital spending and profits.
We continue to be concerned about inflation. As an economy transitions into the later stages of the typical business cycle, inflationary pressures are common. This is usually fueled by strength in the employment market – as low unemployment such as we have today means higher wages in order to attract workers. While wage growth has remained muted in the current cycle, protectionist trade policies can also result in inflation.
We are increasingly concerned with what we see and hear from The Trump Administration in terms of trade. The United States officially enacted $34 billion worth of new tariffs on Chinese manufactured and capital goods in recent weeks. In response, China launched $34 billion of tariffs on U.S. goods – mostly agricultural products.
Protectionism has not historically gone very well, ultimately resulting in a losing proposition for all involved. With the US and China representing nearly 40% of the world’s economy, a trade war between the two countries could have substantial negative effects on the economy. Thus far these tensions have not impacted economic activity or equity prices domestically, we think stock prices would be higher today were it not for trade issues. Fortunately, investors have focused on economic data and earnings growth, resulting in the strength seen in equities. We remain hopeful that earnings growth will remain solid and be enough to keep investors committed.
While this all plays out for the balance of 2018, we continue to expect elevated volatility. We will continue to make tactical decisions given that backdrop and remain confident in our current positioning. As always, our team is prepared to discuss your personal situation and specific needs and encourage you to be in contact to ensure that we have the right mix of strategies to meet your current and future needs. We appreciate the opportunity to serve you and appreciate the trust and confidence that you have placed in our firm.
Joseph P. Biondo
Chief Executive Officer
Chief Investment Officer
Portfolio Manager
Sources: www.letour.fr; IAS & Wealthscape – returns; Focus Financial Advisors – volatility, growth vs. value; Factset – earnings growth; Axios – Chinese tariffs; Bloomberg – US/China economies; Quodd – S&P 2018 YTD; Standard & Poors – annual earnings growth; CNBC – U.S. tariffs on China; Dorsey Wright, Bloomberg – relative strength.
The information set forth regarding investments was obtained from sources that we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance does not guarantee future results.
SECOND QUARTER REVIEW 2018
Biondo Investment Advisors
Happy Summer! Beaches, barbeques, camp, fireworks, lightning bugs are some of the best things, in my view, that come with summer. Vacation too.
I was fortunate to spend the last days of June and first days of July with my family in Italy – 16 of us in total went to celebrate Joe Sr.’s upcoming 80th birthday. We visited several towns along the Amalfi Coast, met some wonderful people, ate fantastic food, and ended our trip in Rome.
I was awestruck by Rome, which I have been lucky enough to have now visited three times in my life. I am not sure if it was seeing the city through my children’s young eyes, through my own now middle-aged eyes or some combination of the two. Whichever or whatever, the history boggles the mind. How they even thought to build, much less execute the construction of the structures is fascinating. The Colosseum, the Pantheon, St. Peter’s Basilica, the Trevi Fountain, and the Forum were all highlights. Rome was the world’s superpower for a thousand years because the ancient Romans understood long-term investment!
The summer also holds a special place in the hearts of cycling fans worldwide, as it brings the sport’s most famous race, the Tour de France. For those that are unfamiliar with the event, the Tour de France is one of cycling’s three Grand Tours. Each July, 20+ teams comprised of nearly 200 of the best cyclists in the world compete in the race, which spans 23 days and covers more than 2,000 miles. With 23 days of televised coverage, you’re likely to catch at least one of the various stages of the race. If you do, you will notice that riders tend to pack together in groups, in cycling parlance known as the “peloton.” Winners will pull ahead of the peloton, while riders who struggle with the grueling pace or experience equipment issues will lag behind.
This same principal can be applied to the markets, with the peloton represented by the broad market. As this large group of hundreds of stocks winds its way around curves, through valleys and over mountains, many stocks will behave quite similarly. However, there will be stocks and sectors that break away from the pack for sustained periods of time, others that fall well behind the pack, and a few that inevitably fall out of the race altogether. Our job as investors and risk managers is to identify the stocks, sectors, and asset classes that have the strength to pedal beyond the comfortable confines of the peloton and avoid those that lag behind or fall out of the race.
The first half of 2018 has been interesting for us to navigate. Much like last year, growth stocks are leading the pack, outperforming the broad markets and value stocks. The two growth-oriented strategies that we manage have fared quite well thus far this year. The Biondo Focus Strategy – our most aggressive – is up 16.09% through June 30th while the Biondo Growth Strategy is up 13.86% – both after fees. Meanwhile, the standard benchmark for US equities, the S&P 500 was up only 2.65% in the first half of the year. On the other hand, the Biondo Dividend Strategy was down 6.07% after fees during the first half.
Volatility was more muted during the second quarter relative to earlier in the year. While markets have struggled to regain their highs posted in late January, on balance markets have remained calmer than we expected. Valuations are much better than was the case at those highs and earnings growth has remained robust. While we are at the very beginning of earnings season, earnings growth should once again show impressive strength. Current estimates for growth are 20%. While down slightly from the 25% level seen in the first quarter, this would still mark the second strongest quarter since 2010. Tax cuts remain an important driver of strength, but sales growth also appears to be boosting results. We expect future guidance to be closely parsed by investors to understand any impact of recent trade issues on capital spending and profits.
We continue to be concerned about inflation. As an economy transitions into the later stages of the typical business cycle, inflationary pressures are common. This is usually fueled by strength in the employment market – as low unemployment such as we have today means higher wages in order to attract workers. While wage growth has remained muted in the current cycle, protectionist trade policies can also result in inflation.
We are increasingly concerned with what we see and hear from The Trump Administration in terms of trade. The United States officially enacted $34 billion worth of new tariffs on Chinese manufactured and capital goods in recent weeks. In response, China launched $34 billion of tariffs on U.S. goods – mostly agricultural products.
Protectionism has not historically gone very well, ultimately resulting in a losing proposition for all involved. With the US and China representing nearly 40% of the world’s economy, a trade war between the two countries could have substantial negative effects on the economy. Thus far these tensions have not impacted economic activity or equity prices domestically, we think stock prices would be higher today were it not for trade issues. Fortunately, investors have focused on economic data and earnings growth, resulting in the strength seen in equities. We remain hopeful that earnings growth will remain solid and be enough to keep investors committed.
While this all plays out for the balance of 2018, we continue to expect elevated volatility. We will continue to make tactical decisions given that backdrop and remain confident in our current positioning. As always, our team is prepared to discuss your personal situation and specific needs and encourage you to be in contact to ensure that we have the right mix of strategies to meet your current and future needs. We appreciate the opportunity to serve you and appreciate the trust and confidence that you have placed in our firm.
Joseph P. Biondo
Chief Executive Officer
Chief Investment Officer
Portfolio Manager
Sources: www.letour.fr; IAS & Wealthscape – returns; Focus Financial Advisors – volatility, growth vs. value; Factset – earnings growth; Axios – Chinese tariffs; Bloomberg – US/China economies; Quodd – S&P 2018 YTD; Standard & Poors – annual earnings growth; CNBC – U.S. tariffs on China; Dorsey Wright, Bloomberg – relative strength.
The information set forth regarding investments was obtained from sources that we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance does not guarantee future results.