3Q 2019 Quarterly Letter

July – September, 2019

Since our last quarterly commentary, our overall viewpoint has not really changed. We shared our concerns about trade tensions with China, political rhetoric coming out of Washington, and the overall value of the stock market in relation to what appears to be some slowing economic data. These issues persist today, however the stock market has shrugged off a lot of these concerns and continues to move higher. We will use this strength in the market to take profits as stocks run up and look for opportunities to reinvest at more attractive prices.

One metric we follow closely is Federal Reserve policy. At this time last year, the Fed was forecast to increase rates meaningfully through 2019 and 2020. However, concerns about a slowing global economy and negative interest rates in Europe pushed the Fed to reverse course and cut rates twice this summer. Current forecasts indicate the Fed will continue to cut rates over the next year. We believe this shift by the Fed has contributed to the recent strength of the stock market, but we continue to expect volatility in stock and bond prices as Fed policy changes.

While lower interest rates can help the stock market move higher, it also means that income paid on bonds will decrease. The yield curve is essentially flat in the U.S. meaning we are not getting meaningfully higher rates in long-term bonds. We continue to invest in short and medium-term bonds as we do not feel we are getting appropriately compensated going longer out on the curve.

As a client of McRae Capital Management, we have developed an asset allocation that we mutually agreed upon. We use this guideline to balance your account between equities and fixed income to manage portfolio risk and volatility. With the rise in the stock market this year, you may see us take some profits in stocks to keep the portfolio within the agreed upon range. This may result in higher capital gains tax this year, but it ensures that we are following a long-term strategy to help you reach your financial goals.

If you have any questions, please don’t hesitate to call us.