The strength of the US Dollar is one of the reasons stocks are correcting. It doesn’t have a material effect at home, but does negatively impact our exports abroad. American companies
with substantial revenues overseas face a slowdown, as prices of international products appear more attractive. Slower revenue growth leads to shrinking profits, which are the ultimate drivers of stock prices. In our minds, the prime reason the Federal Reserve did not raise interest rates in September was its concern for the Dollar getting too strong.
We remain in DEFENSE MODE but believe the correction has created a lot of value. Demand for US assets remains quite strong. With all the problems across the globe, money continues to flow onto American shores, as the strongest and most stable market. The US economy continues to grow at a decent clip. The same can’t be said in Europe or Japan. The US economy is fairly insulated from foreign pressures, but certainly not immune. The recent raucous Market activity reflects this effect of globalization.
Our investment strategy remains focused on the US. We still see many promising investment themes in Tech, Health Care, Sustainable Energy and the Consumer space. We see the weakness as very buyable. Many small companies earning most revenues in the US are particularly compelling. However, we think it’s still too early to get excited about bargains but continue our research efforts to unearth gems to grow portfolios.
We see the stock market correction running its course before year-end. ‘Tis the season… Historically, stocks begin to sell off in August, which accelerates in September, and bottoms out in October, leading to a Santa Rally discussed further on page-2 under Consumer Corner…