Service Team Promotions We are pleased to announce the promotions of Stefany Allen to Senior Administrative Assistant, and of Donna Young to Vice President, Client Service.
Stefany has been part of the VNFA team
since February 2018, helping clients as Administrative Assistant to Founder &
Chairman, Tom Riddle.
Donna has been at the firm since 1989. She
has worked alongside Tom and many of his clients as one of VNFA’s first employees.
In addition to her role as service representative, Donna is Head of Clients Services
and Designated Principal.
Both Donna and Stefany will continue to
serve Tom’s clients as part of their day-to-day responsibilities. Stefany will also
support other advisor and clients, and Donna will be providing leadership and
training for VNFA service team members.
by Connor Darrell CFA, Assistant
Vice President – Head of Investments U.S.
equities generated gains for the second consecutive week as investors seemed to
grow more confident in efforts to keep the novel coronavirus contained. International
equities retreated on Thursday and Friday however after a significant surge in
the number of confirmed cases of the disease. The surge in confirmed cases
followed a diagnostic reclassification by Chinese authorities, which led to an
overnight increase of about 15,000 cases. Markets seemed to interpret the diagnostic
change more as a byproduct of shortages in available testing kits than as an
issue with the integrity of reporting (which has been a concern for some as a
result of China’s questionable handling of the SARs epidemic in 2003).
For now, we see no reason to adjust our
already elevated assessment of geopolitical risks (see this week’s Heat Map
for more details). The World Health Organization suggested late last week
that cases of the virus outside of China’s Hubei Province (the epicenter of the
outbreak) were levelling off, which seemed to help contribute to the market’s
muted response to the overnight rise in confirmed diagnoses. The greatest risk
to the global economy at this time remains supply chain disruptions, which are
likely to continue until after cases of the virus have peaked. Manufacturing
within China has taken a significant hit due to factory and plant closures as
well as travel restrictions within the country. We will get another glimpse at
hard data on Chinese manufacturing at the end of February with the release of
China’s monthly PMI data, which is likely to show contraction.
We would consider an additional elevation
of our geopolitical risks rating should one of two things materialize; either a
substantial increase in the death rate or evidence of an acceleration in the
rate of contagion beyond infected provinces in mainland China (i.e.
internationally). Currently, the death rate continues to hover right around 2%,
though it has inched a little bit higher in recent weeks and currently stands
at about 2.5%. Should that number begin increasing materially, it would suggest
to us that either reporting integrity has been below standard or that the virus
has been more severe than initially anticipated. With respect to contagion, the
incredibly forceful travel restrictions imposed within China seem to have been
effective in stalling the spread of the disease. However, should evidence begin
to emerge that contagion has reaccelerated on an international scale, this
would indicate to us that the significant economic impacts of the disease would
not be confined to mainland China. We view such a scenario as low probability
at this time, but it is a risk that deserves our ongoing attention.
Politics and Investing
With so much news
flow coming out of China with respect to the coronavirus, it has been easy to
overlook all that has gone on in U.S. politics over the past several weeks. What
is particularly interesting about the current state of domestic politics is
that it seems there are those on both ends of the political spectrum who voice
concerns about what an opposition victory might mean for their investment
portfolios. Our belief is that investors should do their best to disentangle
politics from investing, as the controlling political party has historically
had very little influence on market returns over time. We anticipate that
markets may experience short-term bouts of volatility simply as a result of how
polarizing the 2020 campaign may be, but we expect the focus of markets to
remain elsewhere until we have more clarity on who the Democratic candidate may
be. Following the results in Iowa and New Hampshire, it appears that it may be
quite some time before that clarity is realized. The first real opportunity to
narrow the pack will come on March 3, when over 34% of available delegates will
be up for grabs on “Super Tuesday”.
THE NUMBERS Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Freddie Mac
U.S. ECONOMIC HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade 5 key economic conditions that we believe are of particular importance to investors.
US ECONOMY
CONSUMER HEALTH
VERY POSITIVE
The consumer has been the bedrock of the US economy through much of the current expansion and we have seen little to suggest that this cannot continue.
CORPORATE EARNINGS
NEUTRAL
Corporate earnings growth was weak throughout 2019 as a result of slowing in the global economy and trade policy uncertainty. However, analysts are expecting mid to high single digit earnings growth in 2020, which will be important to sustaining recent levels of equity returns.
EMPLOYMENT
VERY POSITIVE
The economy added 225,000 new jobs in January, exceeding consensus expectations. The report also indicated that the unemployment rate ticked up to 3.6% as a result of more people looking for jobs. The expansion of the labor force should be taken as an additional sign of the confidence
Americans have in the health of the labor market.
INFLATION
POSITIVE
Inflation is often a sign of “tightening” in the economy and can be a signal that growth is peaking. Recent inflationary data has increased slightly, but inflation remains benign at this time, which bodes well for the extension of the economic cycle.
FISCAL POLICY
POSITIVE
The Tax Cuts and Jobs Act of 2017 lowered the effective tax rates for many individuals and corporations. We view the cuts as a tailwind for economic activity over the next several years.
MONETARY POLICY
POSITIVE
With the Federal Reserve expected to refrain from any further adjustments to interest rates without a material change in the economic outlook, it is unlikely that changes in Fed Policy will disrupt the economic cycle in the near future. Furthermore, the low absolute level of interest
rates remain a positive for markets.
GLOBAL CONSIDERATIONS
GEOPOLITICAL RISKS
NEGATIVE
Our assessment of Geopolitical Risks is NEGATIVE at this time as a result of the continued spread of the coronavirus. Encouragingly, the disease remains largely confined to mainland China, but the situation is fluid. The virus poses a threat to economic growth, manufacturing activity, and
consumer spending in affected regions.
ECONOMIC RISKS
NEUTRAL
Due to low inflation and weak economic activity, central banks around the world remain in a very accommodative stance. We have seen some recent evidence of modest recovery in places like Germany, but overall, we expect global economic growth to remain modest.
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.
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