Century Management Market Update - May 2019

Summary:

Overall, stocks have performed very well this year.

We believe the economy remains in good shape, supported by low interest rates, low inflation, and strong employment.

We believe earnings growth remains sufficiently strong for further market gains, especially for the holdings in our Century Management portfolios.

We continue to see the energy, materials, industrials, and financial sectors as the cheaper sectors of the market.

The economy is performing better than most expected, with favorable trends in borrowing costs (i.e. lower interest rates, including mortgage rates) providing support for the consumer and housing markets. Some of the latest data shows a 1.6% surge in retail sales during March, nearly twice the gain expected by economists polled by Bloomberg. In addition, data on industrial production and factory usage suggest that activity on the business front is holding up well and should continue to grow at a moderate pace. This year's positive economic growth occurred in spite of the longest government shut down in U.S. history (34 days ending January 25th), extreme weather (i.e. record setting snow and rain fall) throughout much of the U.S. during the past four months, and intensive trade negotiations with various U.S. trading partners.

Looking at The Conference Board's Leading Economic Indicators (LEI) year-to-date through March 2019, the U.S. recorded its largest monthly LEI increase since September of last year. However, its six-month growth rate continued to slow in the past several months. The current behavior of the LEI components suggests that the expansion in economic activity should continue, but the pace of growth is likely to decelerate by year end.

Leading Economic Indicators in March 2019: 8 of 10 Positive

Unemployment claims	Positive Contributor
Average consumer expectations for business conditions	Positive Contributor
The Leading Credit Index TM	Positive Contributor
S&P 500 Index	Positive Contributor
ISM New Orders Index®	Positive Contributor
Interest rate spreads	Positive Contributor
New orders: non-defense capital goods (excluding aircraft)	Positive Contributor
New orders: consumer goods and materials	Positive Contributor
Average weekly manufacturing hours	Held Steady
Building permits	Held Steady
Source: The Conference Board April 18, 2019

With that said, we are taking a somewhat cautious view of the economy and the overall stock market in the coming quarters. We believe that even with the strong performance in retail sales last month, better global trade figures, the uptick in the leading economic indicators, and the recent 50-year low in weekly jobless claims, there may be enough global and domestic choppiness to keep GDP growth in the 2% to 2.5% range in 2019. This, of course, is aided by a dovish Federal Reserve, low unemployment, and low inflation.

We continue to monitor trade closely. While progress in negotiations has been widely reported, the U.S. and China have yet to end the current standoff. Additionally, the U.S. has suggested it may impose new tariffs on the European Union and Canada as an incentive to renegotiate more favorable trading terms. Expectations are that these issues will begin to resolve themselves in the months ahead. However, if this scenario does not unfold, we would likely see downward pressure on stock prices, at least in the near-term.

Looking at the economy as a whole, we don't see a recession in 2019. As for 2020, while there may be a deceleration in business activity, at this time we believe the chance of a recession is low. However, should interest rates and inflation increase - indicators we monitor closely - we would likely increase our probability of a recession.

Taking a closer look at stocks, first quarter earnings are currently being reported and so far we are encouraged. As of April 26, according to Value Line®, more than 75% of the companies held in the S&P 500 Index posted results that exceeded expectations. This constructive showing, even with the bar set rather low, is helping to keep the year's strong stock market rally intact.

With regard to Century Management portfolios, during the first four months of the year we saw very strong performance in many of our energy and industrial holdings, which have helped reverse a sizeable portion of the fourth quarter's decline. Century portfolios have also benefited from solid increases from many of our financial, communication, health care, and consumer companies.

Bottom line: We continue to believe our holdings have very good reward-to-risk odds and characteristics. We will continue to monitor and trade our portfolios accordingly.

Disclosures: Century Management reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that the sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable. Forward-looking statements and projections are not guaranteed. Past performance is not indicative of future results. Investing involves risk including the potential loss of principal. The discussions, outlook and viewpoints featured are not intended to be investment advice and do not take into account specific client investment objectives. Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. Century Management is an independent registered investment adviser. Registration does not imply a certain level of skill or training. Century Management is also registered as a Portfolio Manager in the Province of Ontario. More information about the advisor, including its investment strategies and objectives, can be obtained by visiting www.centman.com. A copy of CM's disclosure statement (Form ADV Part 2) is available without charge upon request. Our Form ADV contains information regarding our Firm's business practices and the backgrounds of our key personnel. Please contact Century Management at 512-329-0050 if you would like to receive this information.