Key Takeaways

  • Like Batman, investors cannot resort to superhuman powers when investing. Instead, knowledge, analytical skills and ingenuity are paramount for success.
  • Asset allocation, diversification and risk management are essential dynamics to consider as volatility moves higher.

“I’m Batman!” Well, not really, but on the thirty-year anniversary of the re-birth of this superhero on the big screen (Batman played by Michael Keaton), I am reminded that investors should have a little Batman in them.

No Superhuman Powers Needed. Batman was unlike any other superhero in that he did not have any superhuman powers. He was not the strongest (Superman), the fastest (The Flash), and did not have an early warning “Spidey Sense.” Instead, he used his knowledge, analytical skills and ingenuity to solve problems and keep Gotham City safe. Batman’s attributes are similar to those of successful investors:

Knowledge, or a keen awareness of history, can help investors gain an edge. Our expectation is that a proactive Federal Reserve (Fed) will make two insurance cuts this year (in July and October), which will likely extend this current longest expansion in the history of the U.S. for at least the next twelve months, if not longer. Upon studying other time periods when the Fed orchestrated insurance cuts (1984, 1987, 1995 and 1998), the result was positive for economic growth (i.e., no recession). These insurance cuts provided a positive backdrop for equities, and interest rates rose slightly. This is consistent with our outlook going forward.

Analytical Skills in the form of fundamental and technical analysis provides insights. As an example, current valuations for the S&P 500 make us cautious on the equity market until we see a pullback or an acceleration in earnings growth. In fact, last week, with equity markets at all-time highs and near our year-end S&P 500 target (2946), we cautioned against inflated optimism as the market was priced to perfection regarding progress with a China trade deal and expectations of multiple future Fed rate cuts. With the potential for underwhelming progress (likely, just a near-term ceasefire) at the upcoming G20 meeting and the possibility for the Fed not being quite as aggressive as the market was expecting (three cuts this year), we offered a more cautious tone on the market. Additionally, technical indicators (RSI, moving averages, breadth, sentiment indicators, etc.) that helped us identify buying opportunities in late April had turned more cautious, affirming our view.