Hank Smith, Haverford Trust, Chief Investment Officer
Fed policy and Trade policy are the biggest drivers for the equity markets. The Fed has hinted at a more dovish tone leading to the possibility on 1 or 2 rate cuts this year. That leaves trade policy as the big driver for the markets.
Near term, the market wants to see forward momentum on China trade talks. Our view, which is the bullish view, is that a China trade deal will get done sometime this fall, and both sides will say it’s great.
Tariffs will also come down, and there will be no more new tariffs or threats. We may have 1 or 2 rate cuts by then too.
As a result, business confidence will pick back up, resulting in business investment and capital spending. This will lead to an acceleration in GDP in 2020; perfect timing for the election.
Better than bond yields by 50%+ and you get growth of income from annual dividend increases. This has been a consistent opportunity throughout the 10-year bull market: more income from stocks than bonds.
JPM: best managed and highest quality bank in the world. Tailwinds of tax reform, GDP growth, de-regulation. Cheap valuation 3% dividend which is growing and 50% better than the 10-year treasury.
UPS: stock has sold way off on slower global growth and fears of a trade war. Secular tailwinds: e-commerce and emerging market growth. Cheap valuation and a 3.75% dividend yield with a history of annual increases.
PEP: a more defensive play in case our bullish thesis doesn’t play out. Fastest grower among package food/beverage companies. 2.9% dividend yield with 46 years of consecutive dividend increases.
Disclosures: Haverford Trust owns these three stocks, Hank owns these three stocks, Hank’s family owns these three stocks. No investment banking relationship with any of these stocks.