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“Always borrow money from a pessimist. He won’t expect it back.” -Oscar Wilde
The second quarter finished with gains in both large and small capitalization stocks with the S&P 500 increasing by 3.09% and the Russell 2000 gaining 2.46%. The technology stock heavy Nasdaq continued to move higher with a gain of 4.16% for the quarter. Clearly, the standouts were international and emerging markets equities, posting returns of 6.12% and 4.34%, respectively. Currently, international equities are trading at better valuations than U.S. equities, so the positive trend may continue for international stocks.
Despite the interest rate increase by the Federal Reserve, bonds also posted gains. Municipals were the standout, after a tough Q4 following the Presidential election. The Barclays Municipal Index gained 1.96%. Longer duration bonds experienced better performance than shorter duration bonds, as long-term interest rates declined.
The Q2 economic data was as expected. Inflation as measured by the CPI is holding below the Federal Reserve estimate of 2%. The Fed raised interest rates by 0.25% in June, with another increase not on the radar until December. Unemployment remains low, at around 4.3%.
Healthcare and tax reform efforts have taken longer than expected. As of this writing the Republican replacement for the Affordable Care Act seems to be DOA in the Senate. A failure to repeal or replace the ACA, may bring tax reform to the forefront of debate. However, in the current political environment, it is doubtful that that tax reform would be implemented by year-end.
- Earnings, interest rates, inflation and political developments will continue to be the major economic factors driving our markets.
- Thus far in 2017, the data has been viewed by the markets as positive, and solid data is expected to continue for the remainder of the year.
- With stocks trading at all-time highs, finding value in today’s market is becoming quite a challenge. At these lofty levels, disappointing corporate earnings, domestic political and/or geopolitical events could trigger a market correction at any time.
- While Q2 experienced low volatility, that trend is not expected to continue.
- Now is an excellent time to re-examine your goals, risk tolerance and asset allocation.
As always, I sincerely appreciate the opportunity to work with you and appreciate your trust and confidence.