Our Investment Committee recently met to review our investment models, and we wanted to let you know that we will be making a swap from a Capital Markets fund (ticker KCE) into a fund that invests in the “Magnificent Seven” (ticker MAGS). The Magnificent Seven is a focused group of the largest technology and growth stocks in the United States. The change is prompted by the fact that these 7 companies, which have driven the market for years, have struggled relative to broader indices since the 4th quarter of last year. At the same time, these companies continue to grow their profits and earnings. We believe this combination of recent underperformance, but growing profits gives us a unique opportunity to buy them at a relative discount.
As always, we continue to watch the markets and economy closely. There are certainly things to worry about such as the Iran conflict, a sluggish labor market and sticky inflation. To give some historical perspective, the onset of wars and geopolitical tensions typically leads to some short-term volatility in the markets but rarely has a negative long-term impact on returns. [1][2]
At the same time, there are many reasons to be optimistic about the market for the rest of the year. Corporate profits continue to grow; the US consumer remains resilient, and many people are receiving larger tax refunds this year which should act as an indirect stimulus to the economy. What you don’t hear in the news is there are areas of the market that are doing well this year, particularly small cap stocks and international stocks. Bonds are also doing their job and providing stability, which is particularly important for our clients that are taking systematic withdrawals from their investments.
As always, thank you for your continued trust and support. Please don’t hesitate to reach out to us if you have any questions.
Sincerely,
Your PFA Investment Committee
[1] https://www.jpmorgan.com/insights/markets-andeconomy/markets/how-do-geopolitical-shocks-impact-markets
[2] https://www.lpl.com/research/blog/iran-escalation-how-marketshave-reacted-to-geopolitical-events.html