General
- Historically, market shocks have provided reasonable entry points for long-term equity investors.
- As the cycle matures, we believe investors should consider moving up in quality (we favor U.S. Large Cap Equities).
- Once it is evident that the economy is deteriorating, we would look for opportunities to tilt to more economically sensitive segments of the market in anticipation of an eventual recovery.
Domestic
- We anticipate earnings growth will experience challenges as operating margins fall while interest, labor, and input expenses remain elevated.
- We prefer U.S. Large Cap Equities over U.S. Mid Cap Equities and U.S. Small Cap Equities. We also emphasize quality in our sector positioning, and selectivity at the sub-industry level.
International
- Europe still faces an uncertain energy future and recession, but we suspect sentiment should not weaken further and the upturn should support higher valuations which currently sit near 17-year lows.
- We remain unfavorable on Emerging Market equities as geopolitical and regulatory risks in addition to China’s lower growth potential keep us on the sideline.