by Chad Meyer, CFA

The case for American Independence, as it was argued some two hundred and fifty years ago, comprises scenes familiar to any schoolchild—British troops in the streets, tea in the harbor, and a felt need for self-government. But writing to a friend in 1816, Thomas Jefferson identified a less obvious threat to his young country—one that he viewed as more dangerous than the Red Coats. “I sincerely believe,” he admitted from his Monticello desk, “…that banking establishments are more dangerous than standing armies.” Although July 4th has come and gone, American investors can be forgiven for keeping that particular founding concern at the front of their minds all summer long.

By traditional standards, the second quarter of 2019 was a success. May’s trade-war jitters notwithstanding, the S&P 500, Dow Jones and Nasdaq indices all turned in impressive gains over the three-month period, notching increases of 3.1%, 2.8% and 4.2%, respectively. This strong across-the-board performance was largely due to a historic finish, with all three benchmarks breaking decades long records for the month of June. The reason? The Federal Reserve sent a signal that it is prepared to cut interest rates to keep the bull market alive. President Jefferson was right. A single “banking establishment” really can be more powerful than a squadron of soldiers.

Given its central role in the market’s most recent rebound, it’s no surprise that the Fed now serves as a fault line between the gloom and doom camps of market commentary. On the bullish side of the ledger, some analysts point to indicators of economic deceleration, including a dip in hourly economic wage growth, as evidence that rate cuts will arrive right on time later. By contrast, others read a delay into the tea leaves, predicting that the Fed will gather more data (particularly on trade) and keep rates level until September at the earliest. Under this view, investors should gear up for the volatility that will ensue if the Fed fails to meet the expectation it set in June.

If these competing forecasts leave you feeling uncertain, take comfort in knowing you are not alone. On average, U.S. stocks continue to be pricier than those of other developed markets, with gains disproportionately concentrated in a select few “crowd favorite” companies. Coupled with interest-rate anxiety, this backdrop has split investor sentiment almost perfectly down the middle. Just under half of Americans believe that the market will keep going up in 2019, while the remainder are evenly divided on whether there are flat or down times ahead.

Time will tell which of these stances is correct. But at the risk of sounding like a broken record, allow me to note a trait common to all these perspectives that is not correct—an undue focus on the short term. Here at Tufton Capital, our decisions don’t turn on what bureaucrats may or may not do by the month’s end, or where the broader market could be by year end. Instead, we focus on whether or not a given investment is compelling enough to grow your capital, in any market, across the long term. While this conservative, value-driven approach may strike some as quaint (Jeffersonian, perhaps?), it has successfully driven both our thinking and client outcomes since 1995. As the summer rolls on, your team of investment professionals invites you to sit back, relax, and tune out the near-term forecasting. We remain honored by the opportunity to safeguard your financial independence, one careful investment at a time.