Dear Clients and Friends,
Before we get to our investment update, we would like to point out that we have changed the format regarding the content of this and future quarterly reports. In the past, we sent you the “combined” portfolio balances of all the accounts including the combined performance report as well as the list of individual holdings. We want to expand on the performance report and eliminate the inclusion of individual holdings. These individual holdings are set up to be automatically sent directly to our clients from Schwab. So, there is no need to duplicate this effort. However, we do want to expand on the performance of the portfolios by including the “combined” performance report, but also the “individual” performance report of each account. Everything else will remain the same. We hope you enjoy our new format and we would welcome your input.
As far as our investments are concerned, the volatility brought the stock markets down this quarter. This volatility is due to the uncertainty of the effects of tariffs as well as finally understanding that the economy is slowing and perhaps significantly. In effect, all of stock gains made since Trump was elected in November have been erased and we are back at pre-Trump levels.
U.S. retail sales rebounded marginally in February as consumers pulled back on discretionary spending. Reinforcing the growing uncertainty over the economy against the backdrop of tariffs and mass firings of federal government workers. Nonetheless, the February report from the Commerce Department last month suggested the economy continued to grow in the first quarter, though at a moderate pace. It sketched a picture of a cautious consumer, with sales at restaurants and bars declining. With consumer sentiment sinking to a near 2 ½ year low in March, sales could struggle in the months ahead.
President Donald Trump’s raft of tariffs, which has unleashed a trade war, has ignited worries about inflation as well as job and income losses, developments that could undercut consumer spending. Mass layoffs of public workers as part of an unprecedented campaign by the Trump administration to shrink the federal government are also seen hurting spending. A stock market sell-off could curb spending, predominantly driven by high-income households, while rising food prices could squeeze low-income households.
At the last meeting in March, the Federal Reserve did what we expected, which is nothing as far as interest rates. However, the Federal Reserve’s quarterly updated summary of economic projections anticipates two quarter-point rate probability that the central bank will drop its rate by 0.75 or less this year. Also, they cut the runoff of their balance sheet, which could let the bond market yields come down. Overall, we continue to feel cautiously optimistic about how the stock market should continue to advance.
During the quarter, we took advantage of the volatility by buying one new position in CSX Corp (CSX). We also purchased HF Sinclair Corp (DINO) in most of the taxable accounts but we sold it for a short-term loss for tax purposes. We may want to buy it back after 30 days. As far as sales as concerned, we sold Warner Brothers Discovery (WBD) and PVH Corp (PVH).
As far as our investment strategy is concerned, we continue to maintain our standard two-pronged strategy, which is to maintain a substantial exposure to common stocks (and mutual funds) as long as there is reasonable prospect for double-digit returns. Furthermore, we will continue to take profits more frequently so that we could gradually increase our weighting in cash as well as the fixed income portion of our portfolios. During the quarter, we continued with our average asset allocation mix of 40%-50% Equity, 40%-50% Fixed income and 0%-20% Cash for most of the portfolios.
We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary Archives.
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