Insight Article
January 31, 2020
Applied Equity Advisors Monthly Commentary - January 2020

Insight Article

Applied Equity Advisors Monthly Commentary - January 2020

Applied Equity Advisors Monthly Commentary - January 2020

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January 31, 2020


The three Applied Equity Advisors active strategies outperformed their benchmarks in 2019 by a substantial amount. One key reason was that as a style-unconstrained manager and while maintaining Growth exposure, the team had the wherewithal to opportunistically buy Value stocks last summer, when they correctly identified that the S&P500 was mispricing them down to near-recessionary levels (much like 2011 and 2015). The team reacted appropriately and increased its Value exposure by the end of the third quarter. When the call for a recession was ultimately rejected by the market in the fourth quarter, these stocks outperformed by quite a bit.

Going into 2020, Slimmon sees the potential for an overheated economy as the biggest risk for equities. He does not agree with the popular thesis that earnings will disappoint. In his view, after a year of lackluster year-over-year earnings, the bar has been set pretty low and should make it easy to achieve good numbers. The combination of an incumbent President who wants a hot economy going into an election, the Fed pumping liquidity, reduced China trade anxiety, the U.S.-Mexico-Canada Agreement, and the wealth effect of a good stock market suggests that the surprise could be to the upside. Slimmon worries that in response to a hot economy the Fed might have to adjust its policy in 2021, as the anticipation of which could negatively impact market returns in 2020.

Head of Applied Equity Advisors Team
Applied Equity Advisors Team

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