Over the last few weeks, we’ve experienced some foggy conditions.  Earlier this week when stepping outside for a pre-dawn run in the neighborhood it was difficult to see clearly due to the fog and darkness.  The murkiness caused us to think about various unknowns today – the many things one can’t see clearly in current conditions.  Some of today’s unknowns for investors include: 

• Geopolitical concerns. They seem to be growing.
• The change in fundamental capitalism.  It seems the US is participating in a shift toward a controlled economy threatening traditional capitalism as we know it.  What are the potential ramifications?  Is there an impact on the multiple premium the US markets have long enjoyed?
• The pendulum shift on a number of governmental views and actions.
• Changing supply and demand dynamics of the US workforce.
• The potential blessing and curse associated with the imminent AI shift.
• Isolationism and tariffs – how do these changes impact the global and domestic economy?  Short-term and longer-term?  Anyone remember the lessons from Smoot-Hawley?
• Valuations are high for the equity markets.  However, earnings remain strong and look to increase.
• Inflation and jobs. Which is the greater risk for the FOMC and its dual mandate?
• The potential threat to central bank independence.
• The top half of the K-shaped economic recovery is strong primarily due to the wealth effect.  A substantial pullback in market pricing could result in an economic slowdown.
• What does the upcoming Supreme Court ruling on tariffs do to the economy and markets?
• How does the lack of economic data during the shutdown cloud the forecast? 

There are many unknowns, and sometimes it is hard to see forward.  During the run, the fog thickened and then subsided only to thicken again when wrapping up for the cool down after the run.  Although still dark, the fog seemed to worsen.  Turns out, some of the fog was actually condensation on my glasses. There is not much one can do to lessen the fog in the atmosphere, nor the darkness in the sky.  However, there’s plenty one can do to lessen the fog on their glasses.

One can start by tackling what they have control over.  If condensation on glasses, wipe them clean to see better.  If uncertainty over a financial situation, assess goals and objectives, risk tolerance, cashflow needs, and time horizon.  Ask, analyze, and re-ask – what are the counter measures to current concerns? 

How might cashflow needs impact one’s portfolio? What is the time horizon for those cash needs?  How about comfort level with risk?  What are the primary goals at hand?  These are items one can control that are idiosyncratic and unique to their specific situation. 

At a macro level, fortunately, some of the unknowns in the economy and for the equity markets can be offset with the positive view on corporate earnings, increasingly less burdensome regulations, a more business friendly corporate tax environment, a likely increase in mergers and acquisitions, and an almost unprecedented impact to efficiencies and productivity as a result of artificial intelligence.  Furthermore, the fog is lifting as some of the data which was not being released due to the government shutdown becomes available once again.  Hopefully, this data provides direction and a clear path forward.  Although no crystal ball, we remain comfortable with the outlook, yet recognize volatility seems natural, especially during these uncertain times and rich valuations. 

Do not sit out due to murkiness, or fog. Just take added precautions as you go along.

As always, thank you for your interest and in the confidence you place in us!  We are honored and thankful!