posted on March 19th 2017 in Market Commentary with 0 Comments /

Table 1: Key Index Returns

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Source: Wall Street Journal, MSCI.com, CNBC, Morningstar

MTD returns: January 31, 2017 – February 28, 2017

YTD returns: December 30, 2016 – February 28, 2017

*Annualized

**In U.S. dollars

 

Awash in a pool of politics

The market narrative that has dominated the news cycle since November has been the election. Some of you were pleased with the outcome and some were disappointed.

As we’ve said before, it’s not our job to pass judgment over President Trump. It’s our job to discuss and monitor market-moving events, political and economic, through the bipartisan lens of the market. We’re just monitoring how investors sift through and react to external stimuli. Today, that external stimulus is a president who has been proposing policies generally deemed friendly by markets.

Fed Chief Janet Yellen summed it up well during her semiannual testimony before two Congressional committees when she was asked what she believes is driving stocks higher. “I think market participants likely are anticipating shifts in fiscal policy (tax cuts, infrastructure spending) that will stimulate (economic) growth and perhaps raise earnings,” Yellen opined.

One theme we’ve harped on in recent years has been the fact that earnings and the expectation of where earnings are going are the biggest influence over the long-term direction of stocks. And investors who are pricing in faster economic growth are also pricing in an acceleration in profit growth.

 

The devil is in the details…or is it?

As the month came to a close, markets were clamoring for specifics on fiscal policy, not just generalities. There were concerns that we might see a selloff if Trump’s February 28 address to Congress didn’t offer details.

Well, it was light on detailed-policy prescriptions, but markets didn’t seem to care because we saw a different Trump, a “presidential” Trump. It almost reminded me of his conciliatory victory speech in the early morning hours after the election. And shares reacted in a similar fashion, soaring to new highs on March 1.

Trump’s controversial positions and the division we are seeing in the nation just don’t seem to matter as long as the economy continues to expand and earnings come in at a respectable pace. We’ll eventually see volatility return. But forecasters who have been dismissing the rally have been finding themselves on the losing side.

Why? It’s simple. Predicting short-term market moves is next to impossible. It’s why we have always taken a long-term view and recommend investment plans we believe will help you reach your financial goals with the least amount of risk.

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