Pedal to the Metal

Ray Munsch 4/16/21

Since our last meeting, the Biden administration has left the starting line with its pedal to the metal as far as fiscal stimulus is concerned. This, combined with a Federal Reserve Board that is predisposed to err on the side of excess rather than caution as far as monetary policy is concerned has resulted in a happy stock market. There were some bumps in mid-quarter as longer-term interest rates began to rise in response to inflation fears and the Treasury’s massive borrowings, but these fears have been put to rest for the time being and the stock market is achieving new highs on a weekly, if not daily, basis.

With vaccinations moving forward at a robust clip, employment picking up, businesses re-opening and help-wanted ads seemingly everywhere, the economy is expected to expand rapidly throughout the year. One possible concern for the stock market is that individuals may start directing their excess cash/savings into the real economy rather than the market but, even so, foreign investors seem to be plentiful and willing to take up the slack. As forecast, year over year inflation has ticked up recently but is not seen as a problem unless it persists for a spell. There appears to be nothing else in the near term to prevent the stock market from moving higher despite the many signs of excesses and stories of impending bubbles. It is a good bet that whenever the stock market does top out, few, if any, will have foreseen it.

As far as activity in the portfolio is concerned, immediately following January’s BOM meeting we increased the foreign equity exposure, as directed, from 8% to 10% and reduced the domestic equity exposure from 62% to 60%. In early February, the fund successfully absorbed new cash inflows from the Diocese and, in early March, almost $1 million from Christ Church, St. Michael’s. Aside from those transactions, there was little portfolio activity during the quarter other than some minor trimming of our equity position to try to stay within our guidelines. That said, we have purposely maintained our equity exposure at or near its upper range. Our fixed income exposure has been kept at the lower end, or slightly below the lower end, of its guidelines. Recently, the cash position has been allowed to increase (at the expense of fixed income) in anticipation of a comprehensive fixed income discussion at the upcoming meeting. The current exposure (4/16) is shown in the table below.