This year’s first quarter was kind to Winslow stocks. We produced a 4 % return which comfortably exceeded the broad stock market indices. Small cap stocks did materially better than large stocks, a dramatic reversal of last year’s trend.
The strength of the U.S. dollar and uncertainty of the global markets have caused investors to focus more on domestically based companies which are disproportionally represented in the small cap area. To put it another way, large multi-national U.S. companies suffer from a strong U.S. dollar.
Earnings expectations for the first quarter have been ratcheted lower due to poor weather conditions this winter, the dock strike on the west coast and the aforementioned stronger dollar. We believe these conditions create the opportunity for companies to exceed these lowered expectations and we expect the U.S. economy to gain strength in the spring and summer months. This will set up a circumstance for the Federal Reserve to begin to raise rates and investors should ultimately understand normalizing interest rates is a true affirmation of a self-sustaining economic recovery, and not a development to be feared.