Capital Market Comment
March 15, 2018
Frank Mastrapasqua, Ph.D.
Principal, Chairman & Chief Investment Officer
As we enter changing fiscal and monetary policy cycles, our strategies will increasingly reflect the evolving investment landscape. Liquidity and the management of that liquidity will play an even more important role. Rising short-term rates should generate a higher return on liquid assets, and short-term bonds also become a viable option. Increased liquidity will help lessen portfolio volatility and sensitivity to the market. At the same time, a higher level of liquid assets provides the resources to take advantage of opportunistic situations due to market volatility and its impact on stocks. Algorithms, quant models, hedge funds, program trading, and mispriced ETFs produce outsized moves in individual stocks, making liquid resources even more important.
Equally important, as the business cycle matures, increased focus will be upon the key secular trends (themes) and the companies that should experience improved profitability and/or cash flow, regardless of the fluctuating nature of the business cycle. Defense, cybersecurity, cloud computing, artificial intelligence, and healthcare technology are just some of those themes.
At the same time, our cyclical exposure is likely to diminish as peak earnings and profit margins are approached. The impact of growing monetary restraint will impact the business cycle.
Currently, the monetary climate remains supportive of business activity and the equity market. With negative real interest rates and inflation adjusted money supply growth still positive (although less so), and the European Central Bank remaining aggressive, conditions are still favorable and likely to remain that way for some time. However, we remain diligent and sensitive to the changing environment and will closely monitor liquidity conditions.
M Capital Advisors’ Liquidity Index which is the product of many years of research, attempts to capture the degree of stress in the financial markets and assist in influencing asset allocation decisions. For example, an index decline from 100 toward 80 would suggest growing financial stress, and a basis to review and adjust asset allocations further. The index, along with other quantitative and behavioral factors should be helpful in assessing the evolving monetary dynamics.
Mastrapasqua Asset Management, Inc. does business as M Capital Advisors. If you have a question or need further information, please contact:
Patrick Snell, CFA, Principal & Portfolio Manager in Nashville at 615-244-8400, or firstname.lastname@example.org or
Claude Koontz, CFA, Principal & Portfolio Manager in San Antonio at 210-353-0519, or email@example.com.
© 2018 Mastrapasqua Asset Management, Inc. All rights reserved.
The information and opinions contained in this report should not be treated as fact or as insight that will produce desired investment results over time. Investment conclusions always bear risk, and that risk may not be reasonable for any particular reader. Obviously the writer, even assuming good intentions, does not know of the reader’s particular financial circumstance and therefore is not able to assess the propriety of whether a named security makes sense as part of a given individual, family, or institutional portfolio. Mastrapasqua Asset Management clients may, from time to time, own some of the companies mentioned. We hold out no duty to give readers of this column advanced notification of when we may change an opinion. To our knowledge, none of the information contained in our column would, when it becomes publicly available, have an influence on the valuation of a particular stock. Investors should receive investment advice based on an assessment of their own particular investment circumstances and not on the basis of recommendations in this report. Past performance is not indicative of future returns.