During the second quarter of 2018, fiscal stimulus in the US led to accelerating domestic growth, which, combined with quantitative tightening by the Federal Reserve, helped fuel a rally in the US dollar and material weakness in overseas markets. It is unusual to have significant fiscal stimulus this late in a business cycle with little slack in labor markets. For the first time in several decades, there are more job openings than people remaining in the labor pool. Accelerating economic growth is welcome, however, when it comes this late in the business cycle, at a time when dollar liquidity is declining and margins are under pressure, the benefits will potentially accrue more to main street than to Wall Street. We believe global synchronized growth peaked earlier this year and that continued equity market appreciation will depend increasingly on the US. With declining dollar liquidity, rising margin pressures, and elevated earnings growth expectations, we expect market volatility to remain elevated until there is either a reacceleration in global growth or a pause in Federal Reserve interest rate increases or quantitative tightening.
During the quarter, the Saratoga Mid Cap Portfolio’s underweight to REITs was a headwind. The Portfolio was also overweight Financials, which lagged the market. Stock selection within Industrials, Materials, and Technology also hurt relative performance. Stock selection within Energy, Consumer Discretionary and Healthcare contributed to relative performance. The Portfolio is overweight Consumer Discretionary, Financials, Energy, Utilities, and Materials while underweight REITs, Healthcare, Consumer Staples, Technology, and Industrials.
Information contained herein was obtained from recognized statistical services and other sources believed to be reliable and we therefore cannot make any representation as to its completeness or accuracy. Any statements not of a factual nature constitute opinions which are subject to change without notice.
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