Slow growth environment . .


While low growth may hurt industrial’s, a weak economic backdrop may not spell doom for the broader market. Case in point: The market is up 188% since the 2009 low, despite the weakest economic recovery of the post World War II period. And while we  just finished the first three-month losing streak since 2011, the market is beginning to show resilience, shaking off data like a disappointing Chinese (PMI) reading and European bank worries. With the market up about 8% in just over two weeks and oil consistently above $30 for over one week, some of the biggest concerns about recession are off the table, despite some renewed calls last week. A secular shift in the labor force. The labor force grew at 1.6 times the pace of population from 1960 to 2005 but is growing at just 0.7 times. That slowdown is the result of an aging population (where a greater share of citizens is past retirement age, causing participation to slow). And separately, the surge of women entering the workforce in unprecedented rates from 1960 to 2000 isn’t likely to repeat itself.manufacturing.png

Central bank actions are most effective when interest rates are normal and economic weakness is cyclical. Neither of these are true right now, which is why all of this money printing and zero-rate policy isn’t doing the trick. Despite low borrowing rates, corporate spending is down and personal savings are high.

So if the cyclically-sensitive sectors — including industrial’s, materials, energy and financials — are disadvantaged in a secularly slow world, how can we  make money?

Growth stocks that aren’t reliant on global growth remain in the sweet spot. . ! 

Historically, the market has been kind to low P/E stocks (value stocks), but that has not been the case in recent years. Low-P/E stocks perform best when earnings growth is “normal.” As GDP growth remains tepid, these stocks are not in as strong of a position.

In other words, some of the best-positioned names remain in the technology and healthcare groups, where company-specific drivers and innovation boosts their forward prospects. “Companies that have intellectual property–whether that be in the technology or healthcare space or companies that have innovative brands that can continue to expand what they do” are well-positioned in this environment.


stabilization in factoring



J.Mason ♦