During the second quarter of 2019, equity markets continued to recover from the steep sell off experienced in the fourth quarter of 2018. Global central banks are slowly moving to increase monetary stimulus to reinvigorate global growth and we expect the US central bank to begin cutting rates during the third quarter. Unfortunately, given the prior reliance on monetary stimulus, the extended period of ultra-low rates, China rebalancing its economy, and the secular shift in trade flows, we believe central banks’ policies will have less of an impact on underlying economic growth. The industrial cycle, both domestically and internationally, continues to slow. Global weakness has negatively impacted inflationary pressures, with inflation expectations and global interest rates falling rapidly in the first half of 2019. US equity markets continue to price in a second half recovery in earnings growth. Unfortunately, the leading indicators we track continue to show slowing industrial activity. The slowdown is now spreading to the services sector, which will likely cause a softening in employment activity. We expect earnings expectations for the broad market averages to continue to decline during the second quarter earnings season.
During the quarter, the Saratoga Mid Capitalization Portfolio experienced positive relative performance, driven by both stock and sector selection. Stock selection within Consumer Discretionary, Materials, Health Care, and Industrials contributed the most to relative performance. Also, the portfolio was underweight REITs, which underperformed the market. Stock selection within Financials and Communication Services detracted the most from 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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