The Archer Funds Disclosure:

You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund's prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund's prospectus by calling 800-581-7701 or visit www.thearcherfunds.com.


Past performance is not guarantee of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.

2020 Annual Outlook and the Decade Ahead



Troy Patton, CPA/ABV - Fund Manager, The Archer FundsPosted: Monday 1/6/2020  12:48 PM ET


"More money has been lost anticipating a correction than actually in one." – Peter Lynch




Before we can discuss the decade ahead, we must take a look at the decade behind us. We finished off 2019 with one of the best years in the S&P 500 up 31.49%; helping the S&P 500 to an annualized 13.5% gain in the last decade. This was made possible by the extreme recession in 2008-2009 and the rebound in the earnings of the companies that make up the S&P 500. The chart below shows the earnings (orange line) and the S&P 500 (blue line through March 31).



The future will look much like the past or at least rhyme with it. The market for the next decade will be dependent on the growth of Corporate earnings. Yes, there will be gyrations with politics and geopolitical events and other hurdles not yet seen. However, at the end of the day, we will look to the earnings. If they are higher, it is likely the stock market is higher. If earnings are lower or grow in a slower manner, the market will do the same. There is a clear correlation with earnings and performance over periods of time. So, how about 2020? Currently, consensus estimates are for earnings to increase 9.6% for the full-year 2020 and revenue is expected to climb 5.4%. Often these estimates are a bit high and get reduced as the year unfolds. With this said, it is not inconceivable to think the market could return 10% in 2020. We will be watching earnings and reviewing them to see if they are reporting higher amounts than the prior year and by how much. See the chart below. We would like to see the number of companies reporting higher numbers near a 1.5 to 1 level if not higher. Earnings in 2019 were a bit weaker than expected, with the market returns being negative in 2018 and large increases in earnings, the market was able to plow much higher to catch up with the prior year's level of earnings.


 

The earnings in 2020 are expected to be propelled by the following sectors: Energy, Industrials, Materials, and Consumer-Discretionary. Energy has been a laggard for some time. However, with a current Middle East conflict escalating, it is possible for oil to rise in price. US Oil companies will benefit, as we are a net exporter of energy to the world. This is new for the US and as recently as 2005 we were importing 30% of our oil consumption.



Let's also realize we are in an election year. It is obvious to even the casual observer the US has become more divided politically. In 2020, President Trump is up for reelection. There is power in being an incumbent President as far as the market is concerned. When an incumbent is up for reelection the Dow has returned 10.1% in election years vs. -1.6% when the election is open and no one is running for a second term. The markets do not like uncertainty and this year will be no different. With interest rates low, continued government spending, and lower tax rates, the economy should propel higher along with the stock market. Only two incumbents have not been reelected in recent years: Carter in 1980 and Bush in 1992.



We continue to see positive signs in the economy. Home construction has remained strong as new housing starts have been fueled by increasing demand from Millennials. In addition, auto sales continue to keep pace with past years, staying in the 17 million range. When an economy has low consumer energy prices, is a net exporter of energy, low interest rates, backlog of housing starts, and auto sales staying steady, we are likely to see a higher stock market. The two factors that this all depends on is the consumer and jobs. Unemployment levels (seen in chart below) are at historic lows and if this continues, a recession is unlikely.



Let's discuss China for a moment. It appears trade tensions with China have eased just in time for the election season to begin. We have put together a phase 1 plan of trade with China which has caused some disruption in 2019 to supply chains and imports. However, US manufacturers in 2019 have begun to shift manufacturing to Taiwan, South Korea, and India where we see imports increase as of May 2019 by 22%, 12%, and 12% respectively. Although we expect more pressures to remain with China, it is a good sign our country's reliance on a single country is waning.


The last item we would like to point out is the continued disparity with Value vs. Growth. Clearly in 2019 Growth was the leader outpacing Value in performance by nearly 10%. This trend at some point will end. We started to see some reversion to the mean in 2019, but nothing remotely what we expect. We can see that value is still in an oversold position as indicated by the red circle on the chart. We believe investing in value in addition to growth will benefit investors over a long-term investing horizon.



Looking Ahead:


The market will continue to maintain pace give or take based on earnings. Interest rates are in a current holding pattern and unless we see a spike in the 10-year Treasury, earnings should continue to climb beyond 2020. As always, market corrections are inevitable and 2020 should be no different. Although we only saw a maximum of a 7% decline in 2019, it is unwise to think 2020 would be a market with straight up tendencies. Technology over the last decade advanced at a rapid pace and this decade will add to that pace through Autos, Home, Transportation, Energy, and just about every sector we can imagine. This will lead to new innovations and profits for those who are forward looking.


Regards,

The Archer Team

Troy C. Patton, CPA/ABV

Steven C. Demas

John W. Rosebrough, CFA



The opinions contained herein are not intended to be investment advice or a solicitation to buy or sell any securities.  Archer Investment Corporation manages The Archer Funds.  You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing.  The Fund’s prospectus contains this and other information about the Fund, and should be read carefully before investing.  You may obtain a current copy of the Fund’s prospectus by calling 800-800-1776 or visit www.thearcherfunds.com.  Past performance is not a guarantee of future results.  The investment return and principle value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The Archer Funds are distributed by Arbor Court Capital, LLC, 8000 Town Centre Drive, Suite 400, Broadview Heights, OH 44147, Member FINRA. Member FINRA.