Great Divides

It is difficult to remember a time when polarization was so pervasive in so many areas.  Washington is obviously the poster-child with a great ideological divide between our two primary political parties.  On the geopolitical front, a once symbiotic relationship between America and China encouraged by joint economic advancement has turned antagonistic.

Socially, race and gender issues have been at the forefront and have touched everything from the U.S. Supreme Court to NFL games on Sunday. Even in the financial markets this year; we have seen a great divide between the returns of U.S. stocks (most notably technology and growth stocks) and most every other asset class.

Through the first three quarters of the year, investors have experienced solid returns in U.S. stocks.  The gains, however, have not been particularly broad-based within the index or outside.  High-priced technology stocks have dominated returns at the same time most other asset classes have struggled.  Numerous cross currents have emerged this year, helping to exacerbate a great divide in returns.

On one hand, domestic economic conditions and corporate profits have benefitted from large tax cuts, deregulation, rising confidence, and healthy consumer and business fundamentals.  On the other hand, trade conflicts have raised fears and uncertainty while the Federal Reserve has adopted a more hawkish stance (favoring interest rate increases) in response to tight labor markets, rising inflation, and faster growth.  Investors are faced with a decision–“Do we part ways with these underperforming areas like value styles, international stocks, and bonds?”

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