QUARTERLY MARKET COMMENTARY : Second Quarter 2017
As we enter the second half of the year, the U.S. economic expansion is now in its 97th month, the third longest on record. For comparison, the average expansion since 1900 has lasted just shy of four years, or 47 months to be exact. Given how far beyond that average we currently are, a natural inclination is to wonder just how much longer this can go on. Aren’t we due for a recession or some type of pullback? Not necessarily in our opinion. In fact, when looking at the length of historical business cycles, there has been a substantial increase in their typical duration as the economy has matured. For example, the average length of the 18 expansions from 1900 – 1980 was a mere 36 months. But what about the five cycles from 1980 through the present? 76 months. From that perspective, our present situation doesn’t seem near as worrisome. Economists often refer to these types of differences as a “regime change.” More specifically, a regime change is a distinct shift in the characteristics of certain economic phenomena in one time frame compared to a previous one. In this case, business cycles have evolved from stronger, but briefer expansions, to cycles that may now be more-muted, but longer lasting. None of this is to say that the business cycle is dead, or we needn’t worry about another recession – neither is the case, no matter how badly central bankers wish it was. Thus, it’s not simply the passage of time itself, but rather the strength, or lack thereof, for economic fundamentals.
Read the Full Commentary: 2Q 2017
THE ECONOMY: As of June 2017
Halfway through 2017, and it’s been mostly good news for financial markets. The S&P 500 is up 9.34 percent already, and the technology-heavy NASDAQ has gained 14.71 percent. After years of subpar returns, international markets have come to life as well, with the MSCI EAFE and MSCI Emerging Markets rising 13.81 percent and 18.43 percent, respectively. The Federal Reserve increased the federal funds rate another quarter-point at their last meeting, and also hinted at potentially shrinking the size of its balance sheet later this year. So far though, this has had little effect on longer-term bond yields. At 2.27 percent, the 10-Year Treasury Yield is still much closer to its yearly lows than to its high of 2.61 percent back in March.
THE ECONOMY: As of May 2017
International stock markets continued their solid performance in May, buoyed by an improving European economy and favorable results in the recent French presidential election. The MSCI EAFE Index was up 3.67 percent for the month and has gained an impressive 14.01 percent for the year. Though the political environment here in the U.S. is rather hectic presently, it hasn’t put a damper on financial markets. The S&P 500 rose 1.41 percent in May and is up 8.66 percent year-to-date. More important than any news out of Washington is the fact that companies are enjoying solid earnings growth. With most of the first quarter data reported, it looks like this was the best yearly increase in profits since 2011.
THE ECONOMY: As of April 2017
Technology stocks have been some of the best performing assets so far in 2017, helping propel the NASDAQ Index above the 6,000 level for the first time. On the year, it is already up an impressive 12.71 percent. The more diverse S&P 500 has also enjoyed early success, gaining 7.16 percent through April. Overseas, Emmanuel Macron and Marine Le Pen secured enough votes in the first round of France’s presidential elections to move on to a run-off in early May. Macron is expected to prevail, which is likely the most market-friendly outcome. International stocks were up 2.54 percent for the month and nearly 10 percent year-to-date. Despite the Federal Reserve’s desire to continue interest rate raises as the year progresses, there has been relatively little movement in fixed income market’s lately. High-yield bonds continue to perform well though, and returned 1.15 percent in April.
QUARTERLY MARKET COMMENTARY : First Quarter 2017
“The optimist sees the donut, the pessimist sees the hole,” so said eminently quotable Irish writer Oscar Wilde with respect to how people can view the same future through differing perspectives. And despite the purchase of the iconic, North Carolina-based donut-maker Krispy Kreme by German investors last year, hope is springing eternal in the U.S. On the business side, CEO confidence measures are hitting levels not seen since 2006. Also, small and mid-sized firms are increasingly encouraged about business conditions going forward. The NFIB Small Business Optimism Index stayed above 105 for three straight months, easily the best readings during this economic cycle. This compares to a long-term average of 98 and a post-financial crisis mean of just 94. Not to be left out, the American consumer’s outlook has taken a turn for the better. Consumer Confidence, as reported by The Conference Board, recently hit 125.6, the highest since late 2000.
Read the Full Commentary: 1Q 2017
THE ECONOMY: As of March 2017
U.S. stock markets were little changed in March with the S&P 500 up just 0.12% and the small cap Russell 2000 about the same, registering a 0.13% gain. The Federal Reserve’s interest rate increase coupled with the White House’s failure to get new healthcare legislation passed tempered investor’s enthusiasm for equities, especially after such a strong rally over the past three months. Market participants will now likely shift their attention toward potential corporate tax reform. Despite muted U.S. returns, international markets continued their ascent. International developed and emerging markets were up 2.75% and 2.52% for the month. Bond yields have been relatively range bound, with the 10 year treasury yield oscillating between 2.40% and 2.60%.
THE ECONOMY: As of February 2017
Historically, the first February under a new President has been a poor one for stocks. Not so this year, as post-election momentum propelled markets to fresh highs. The S&P 500, Dow Jones Industrial, and NASDAQ were up 3.97%, 5.17%, and 3.91%, respectively, for the month. Emerging market equities have been a top performer so far, up 3.06% in February and 8.70% already on the year. Bond investments had a rough end to 2016, as quickly rising interest rates led to selling of fixed rate investments. These securities have rebounded through the first two months of 2017, though, with municipal bonds up 1.45%, and high yield bonds rising 2.93%. On the docket for March is a Federal Reserve meeting in which markets forecast a better than 50% chance of another rate increase.
THE ECONOMY: As of January 2017
Stock markets started off on the right foot in 2017, with most major markets registering solid performance in January. The S&P 500 increased 1.90 percent, and strong technology stocks propelled the NASDAQ to a 4.35 percent gain. International markets were generally laggards in 2016, but that trend reversed this past month. The MSCI EAFE and MSCI Emerging Markets rose 2.90 percent and 5.47 percent, respectively. In fixed income markets, high yield bonds were the place to be, as they have returned 1.45 percent already this year. There were no changes to monetary policy after the most recent Federal Reserve meeting, so investors will sharpen their focus on potential governmental policy changes as the new administration settles in.
THE ECONOMY: As of December 2016
Despite an unfavorable start to the year, stock markets finished 2016 on a high note. The post-election stock rally continued through December, bringing the yearly return of the S&P 500 to 11.96 percent, up substantially from its low point in early February. Small cap equities fared even better, with an impressive 26.56 percent increase. International markets weren’t as robust as domestic ones, but the international and emerging markets gained 1 percent and 11.19 percent, respectively, for the year. Rising interest rates in December depressed fixed income returns, but will provide higher income going forward. In 2017, policies from both the government and the Federal Reserve are set to change course, which investors will need to monitor closely going forward.
THE ECONOMY: As of November 2016
Whether it was an exhilarating, come-from-behind win in extra innings that gave the Chicago Cubs their first World Series in over a century, or Donald Trump winning the Presidential election a week later, November proved full of surprises. The thrill of victory was only matched by the heartbreak of others. But regardless of who you rooted and voted for, stock market investors should be happy with the month’s result. The S&P 500 and Dow Jones were up 3.70 percent and 5.88 percent respectively, and both hit all-time highs. Small cap stocks fared even better, with the Russell 2000 increasing a whopping 11.15 percent. Bond yields did rise quickly, leading to short-term losses for fixed income holders. However, higher interest rates will mean greater income going forward.