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Brookmont named "Manager of the Decade" by PSN Informa

Market Outlook and Views of the Economy

Read about our thoughts on the market and how we are positioned to take advantage of future opportunities

Market Outlook as of March 27th, 2020


  

The Virus dictates the economic impact which informs the market response


The first four days of the week of March 23rd was the best start to a week in the stock market since 1932. While this market still reflects an unprecedented buying opportunity, we expect more volatility and a potential retest of the bottom. This belief is largely driven by the continued lack of clarity surrounding the virus’s duration of impact on the global economy. 


Voters and Virologists support the quarantine


Balancing economic productivity with prudent virus management will be the public dialogue in the coming weeks. The inter connectivity of society makes it hard to imagine the global economy quickly flipping a switch; the recovery will likely be more like lights gradually turning on. Consider how long and disjointed it took the United States and the global community to get to the current state of lockdown and attempt to “flatten the curve”. As an example, here in Dallas we are subjected to a federal guideline, a state mandate, a county mandate, a city mandate, a school system mandate and an employer/business mandate. These guidelines and mandates are unclear and often contradictory. As it relates to school systems around the country - some have already provided guidance that the remainder of the school year will be finished via distant or e-learning, making it hard to see a return to normalcy until at least summer break. As we have said in our previous updates the key to a sustained market rally and economic resurgence is to have a better handle on the depth and breadth of the virus. In order for this rally, we need to see a peak in new cases, to better understand how long the sick and exposed remain contagious and we need effective testing to know who has antibodies present to fend off the illness.


Reality sinking in with 3.3mn jobless claims, still too early to handicap the final results


3.3 million people filed unemployment claims last week, by far the highest since the DOL began tracking the statistic in 1967 (previous high was 695k in 1982). Analysts project these historic weekly numbers for the next month (see chart below.) The good news is we believe once an orderly return to the workplace is achieved consumer spending will pick up relatively quickly, assuming the virus doesn’t linger and cause an extended economic shut down. Just as Americans were encouraged to invest in wartime bonds during WWII, we are now tasked with supporting local restaurants and businesses once life normalizes. This, coupled with the fiscal stimulus working its way to the consumer, will help prime the main street economic pump but will not be a cure-all. You can generally classify bear markets into one of three categories: event driven  (like 9/11) which are short lived (9 days) and quick to recover (15 days),  cyclicalwhich have slightly longer length (27 days) and recovery (50 days), and finally structural which has the longest length (43 days) and recovery time (111 days). The challenge we face is that we were already reaching a cyclical bear market, which was exacerbated by an event of indeterminate length (at least as of now) which could result in structural unemployment. 


For these reasons we continue to opportunistically buy and sell at the margins but believe that discipline in the bear market rallies will be rewarded for the long-term strategic investor. 


The team at Brookmont are happy to share additional thoughts on the markets and our portfolios.


Disclosures:

This letter may contain "forward-looking statements" which are based on Brookmont’s beliefs, as well as on a number of assumptions concerning future events, based on information currently available to Brookmont. Current and prospective clients are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of future performance, and are subject to a number of uncertainties and other factors, many of which are outside Brookmont’s control, and which could cause actual results to differ materially from such statements. All expressions of opinions are subject to change without notice.


A complete description of Brookmont's performance calculation methodology, including a complete list of each security that contributed to the performance of this Brookmont portfolio is available upon request.


Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases has not been updated through the date of the distribution of this letter. While such sources are believed to be reliable for the purposes used herein, Brookmont does not assume any responsibility for the accuracy or completeness of such information.


These individual securities do not represent all of the securities purchased, sold, or recommended for this Brookmont portfolio and the reader should not assume that investments in the securities identified and discussed were or will be profitable.


The firm maintains a complete list and description of composites, which is available upon request. Results are based on fully discretionary accounts under management, included those accounts no longer with the firm. Composite policy requires the temporary removal of any portfolio incurring a client initiated significant cash inflow or outflow of at least 15% of portfolio assets. The temporary removal of such account occurs at the beginning of the month in which the significant cash flow occurs and the account re-enters the composite at the beginning of the month which follows the cash flow by at least 30 days. Additional information regarding the treatment of significant cash flows is available upon request.


Brookmont's returns do not include reinvestment of dividends and are shown gross-of-fees. All transaction costs are included. The Russell 1000 cumulative return includes reinvestment of dividends and capital gains. During a rising market, not reinvesting dividend could have a negative effect on cumulative returns. There is no representation that this index is an appropriate benchmark for such comparison. You cannot invest directly in an index, which also does not take into account trading commissions and costs. The Volatility of this index may be materially different from the performance of the Strategy. Gross returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. Net-of-fees performance was calculated using actual management fees. Additional information regarding the policies for calculating and reporting returns is available upon request.


Your account returns might vary from the composite's returns if you own securities that are not included in the Strategy or if your portfolio dollar-cost averaged into the Strategy during the reporting period.


Brookmont Capital Management claims compliance with the Global Investment Performance Standards (GIPS®). To receive a complete list and description of


Brookmont's composites and a presentation that adheres to GIPS standards, please contact Suzie Begando at 214-953-0190 or write Brookmont Capital Management, 2000 McKinney Avenue, Suite 1230, Dallas, TX 75201.


Brookmont Capital does not provide comprehensive portfolio management services for investors who have not signed and Investment Management Agreement with our firm.

Past performance is not indicative of future results


1- The ISM PMI survey has a longer track record and thus is often the preferred survey measure but focuses on larger companies that will necessarily be more globally focused and weights the components differently than the MARKIT/IHS survey. The MARKIT/IHS PMI survey has a different weighting method and focuses on smaller businesses and thus may be a better indicator of US manufacturing resilience. Indeed in 2015/16 the MARKIT PMI recovered earlier from a shallower trough than the ISM reading. 


This may contain "forward-looking statements" which are based on Brookmont’s beliefs, as well as on a number of assumptions concerning future events, based on information currently available to Brookmont. Current and prospective clients are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of future performance, and are subject to a number of uncertainties and other factors, many of which are outside Brookmont’s control, and which could cause actual results to differ materially from such statements. All expressions of opinions are subject to change without notice. 


Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases has not been updated through the date of the distribution of this letter. While such sources are believed to be reliable for the purposes used herein, Brookmont does not assume any responsibility for the accuracy or completeness of such information.