During the first quarter of 2019, equity markets recovered from the steep sell off experienced in the prior quarter. The powerful rally was triggered, in part, by global central banks acknowledgement of tightening liquidity conditions and an increase in monetary stimulus by China. We believe a reacceleration in economic growth is necessary to reach 2019 earnings estimates for the broad market averages. First quarter earnings growth is expected to be negative sequentially before beginning to recover with a sharp year over year increase in the second half of 2019. Unfortunately, the leading indicators we track continue to show slowing industrial activity not just overseas, but also in the US. The slowdown is now spreading to the services sector, which will likely cause a softening in employment activity and a reduction in inflationary pressures. Unless these leading indicators improve during the second quarter 2019 earnings estimates will need to be reduced. In the near-term, economic activity will likely continue to slow, which will further pressure margins and ultimately earnings growth. Equity valuations have risen materially in Q1 2019 as markets recovered, and we expect equity markets to remain volatile until the economic slowdown has bottomed and we return to an environment of sustainable economic growth.
During the quarter, the Saratoga Mid Capitalization Portfolio experienced positive absolute performance but underperformed its benchmark.Relative performance was driven by sector selection: the portfolio was overweight Financials and Utilities, which underperformed the market, while underweight REITs, which performed well during the quarter.Stock selection within Consumer Discretionary, Health Care, and Industrials also detracted from relative performance.Stock selection within Communication Services and Materials contributed the most to relative returns._______________
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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