Investor Insights

April 2018 Investor Report

Published: April 4, 2018Updated: April 25, 2019

April saw a return to growth across all major indexes and our portfolios. Despite this, we have some apprehensions about the immediate future of the markets and our economy. The United States and other major developed economies are in a ‘growth rate cycle downturn’ and have been for the last several months. Our misgivings were validated in the last few days when the initial first quarter 2018 GDP growth estimate was merely 2.3 percent. Several headlines exalted this figure as ‘good,’ because it surpassed earlier estimates which were as low as 2.1 percent. However, when compared to GDP from the preceding two quarters, an unsettling pattern is evident. The 2017 third and fourth quarter GDP estimates were adjusted to 3.1 percent and 2.9 percent, respectively. This pattern is all the more disquieting in consideration of the context of the weakest labor force and productivity metrics since the Great Recession (see below).

It is important to understand that a growth rate cycle downturn is not a unique event. The United States has had three other similar occurrences since the Great Recession of 2008‐2009. In each case we avoided a recession and the markets reached new highs after these “speedbumps.” In our opinion, what separates this downturn from the others is that we are in a period of “quantitative tightening” versus “quantitative easing.”

Previously, the Federal Reserve was providing cheap money to banks who, in turn, facilitated easy loans to borrowers. Some believed this policy artificially propped up the economy and markets alike. The Federal Reserve is now doing the opposite. It is taking money off the table and making borrowing more expensive; we expect at least three additional interest rate increases in the remainder of 2018. While we feel a prognosticating a full‐on recession may be premature, we expect to continue seeing a slowing growth rate throughout this quarter.

As always, please feel free to reach out to us with any questions that you may have. We are grateful for the trust that you place in us.