The advisors at River Wealth are committed to enriching investors by sharing their insights and understanding of the market by regularly publishing the Market Currents in our quarterly Currents Newsletter.
If you’d like to gain investment insights, sign up for your complimentary subscription today. Please fill out the form to the right and click Sign Up Now button. We’ll be happy to add you to our subscribers list.
Second Quarter 2017
The momentum of the first quarter of 2017 continued throughout the second, as equity markets topped all-time highs. Nonetheless, investors remain cautious as some markets now trade at high valuation multiples, and sociopolitical headlines sustain an environment of uncertainty. At the same time, while bond returns expanded during the 2nd quarter of the year, central bank activity aimed at keeping rates low continued to ease, causing concerns about the implications of higher interest rates.
Although not much traction was gained toward execution of any major agenda item of particular interest to markets, the focus of investor attention on Washington D.C. continues. While the D.C. drama remains a significant distraction, the market’s void of anticipated policy activity is being filled somewhat by solid corporate earnings and an improving economic environment. In addition, improving economic conditions abroad have supported expanded foreign market valuations.
Domestic policy activity – The situation in Washington D.C. persists with not much real progress on any impactful policy. Financial market’s hope for reforms in corporate tax policy, both in terms of tax rates and arrangements to repatriate cash held abroad, and easing of federal regulation seem to be slowly dimming. Policy and regulatory shifts with the potential to support domestic growth and improve/sustain equity valuations have been slow to develop, but we remain early in an administration that is getting a slow start with many administrative positions unfilled.
Central Bank activity, rates and inflation – As widely anticipated, the Federal Reserve increased its benchmark interest rate a quarter point amid rising confidence that the economy is poised for more robust growth. The move in June takes the overnight funds rate to a target range of 1.00 percent to 1.25 percent and confirms the Fed is on a likely path of regular hikes now into 2018.
Corporate Earnings – Earnings came in strong for the First Quarter and the strength is anticipated to continue throughout 2018. After disappointing growth in 2016, expectations for significant earnings growth during 2017 are supported by a continuation of profit margin expansion and improving economic conditions.
Geopolitical concerns – As noted above, in the shadow of strong financial market performance, lies a sense of concern that some unpredictable policy situation could cause systematic problems. These concerns are primarily focused on foreign and trade policy where relationships are complicated, delicate, and sometimes tenuous. Investors should remain vigilant of these developments that could derail other economically positive policies.
As always, we remind investors to remain focused on long-term objectives. We regularly note that; maintaining a disciplined approach during spats of volatility opens investors to opportunities, and perhaps, more importantly, prevents costly mistakes. It should also be noted, particularly at time like these, that chasing returns in steadily growing markets can have similar pitfalls.