Market view: From the desk of CIO Eric Freedman

Controlling the Controllables

All three of my kids are athletes, with the oldest two now former collegiate competitors. They played a variety of sports – golf, track and field, cross country and field hockey. My wife and I love watching them play, and invariably when we are at a stadium, pitch or golf tournament in a straight downpour or alternatively 100-degree heat, we are reminded that our kids chose outdoor sports. For those readers who long for the days when they will get their nights and weekends (and wallets for that matter) back from youth sports, it is cliched to say but don’t blink, it goes too fast. I would pay a healthy sum to drive my oldest to a golf tournament multiple hours away or watch my middle daughter rip a backhand into the top corner of a field hockey goal. Fortunately, our son (also a golfer) is still under our roof, and we enthusiastically watch him pursue his passion; sports parenting is a privileged investment and as soon as it becomes a sacrifice, it’s time for recalibration.

The phrase “control the controllables” has many life applications, including outdoor athletics. Some obvious uncontrollable elements include the weather, a competition’s start time (the earliest tournament tee time we have had was 6:30 am, but a tornado warning delayed the start by an hour), how loud the hotel was the night before, whether the cross country course changed from the prior year, and if the greens were double cut and rolled to make them extra slick. Less obvious “uncontrollables” include the coaching staff’s disposition, how accurate the pin positions are in the tournament versus the practice round, and if the track suit was washed with a new detergent that causes chafing.

The controllables are clearer. Whether the runner stuck to the hydration plan, if the field hockey player brought the right kind of turf shoes or cleats, if the golfer remembered their range finder and yardage book (if you want to hear a funny story on golf equipment, watch former Tiger Woods caddie Stevie Williams recap how Tiger almost ran out of golf balls during the U.S. Open at Pebble Beach). As always, attitude and effort are the intangible controllables, and athletes who persevere increase their odds of a favorable outcome.

Our investment analysis zeitgeist centers on the ‘controlling the controllables’ concept. As a large bank with a deep and specialized research team, understanding and anticipating capital market trends requires a disciplined process where art and science interact. Tax, trade, regulatory and interest rate policy dominate the current capital market landscape and largely represent “uncontrollables,” and in our world that translates to more challenging forecastable elements. However, some more readily forecastable variables exist: consumer health and business activity. We develop monitors and models to gauge and predict the more likely forward scenarios and invest based on our convictions. We like to say that we have a “working thesis” mentality that evaluates potential pathways, and when new information emerges, we need to remain mentally flexible and unemotional.

Tariff and trade policy exemplifies our approach. While we and the rest of the investment community await policy clarity, we actively gauge supply through analyzing shipping and port activity. We evaluate consumer spending and borrowing trends within specific income cohorts, incorporating individual company and sector insights. We and every other investment manager are what we call “price takers” on policy announcements; while we have a thoughtful Washington research effort, trade negotiation contours, the latest tax bill tweaks and potential regulatory changes remain subject to inference and randomness. Our “glass half-full” working thesis centers on our data analysis showing still encouraging consumer and business growth relative to overly pessimistic expectations.

I encourage you to read our investment outlook piece, where our most senior research team members share our capital market perspectives with a global view across asset classes and economies. We continue to favor diversified income sources and encourage those reliant on domestic-only stocks and bonds to engage with your U.S. Bank representative on broadening your exposures. Despite our optimistic outlook, markets have already driven several equity indices to all-time highs in the second quarter despite the trade agita and geopolitical conflicts.

We appreciate your engagement, and we will continue to emphasize communication and message clarity; those are certainly within our control. Best wishes for a healthy start to summer and please don’t hesitate if we can help with anything.