ETON Advisors Newsletter - July 2018

The Tug-of-War Continues

In last quarter's Outlook, we suggested that financial markets are caught in a tug-of-war between the positive impact of late-cycle economics and negative forces connected to monetary policy and geopolitics.

Economic Tug of War

As we look toward the second half of 2018, we reiterate our assertion that this struggle between opposing forces is ongoing and will continue for the near-term. Whether the positive impact of economic growth is likely to exceed the negative impact of rising interest rates and geopolitical uncertainty is the major question facing investors.

The dispersion of asset class returns in the second quarter 2018 reflects the degree to which factors on either side of the tug-of-war are impacting individual investment strategies differently:

From the perspective of strategic portfolio allocation, we recommend investors remain highly diversified in this uncertain environment. Within strategic target ranges, investors might consider holding greater cash balances to buffer portfolio volatility and provide dry powder in the event of a market selloff.