Market Update-Q4, The Final Stretch

The third quarter has come to an end and the holiday season is quickly approaching. Markets have continued to impress year-to-date and according to Raymond James Chief Investment Strategist, Jeff Saut, “Evidence suggests investors are witnessing the biggest bull market on record1.”

Here is a recap of where various market indexes have performed through September, 2017: S&P 500 +12.53%, Dow Jones Industrial Average: +13.37%, NASDAQ: +20.86%, MSCI EAFE: +17.21%, Russell 2000: +9.85%, Barclay’s Aggregate Bond: +3.15%.

 

Why are Things Doing so Well?

  • Solid earnings growth for both US and International companies. Continuing technological advancements that change the way we do everything from buying goods and services, communicate and utilize daily transportation.
  • Expectation of deregulations that could boost growth and expectations of tax reform that could stimulate economic activity through capital investment and more jobs.

Volatility

Volatility has been extremely low this year and for the past 8 years for that matter.

Quantitative Easing (QE) has helped the market advance since 2009 with much less volatility. According to Yardeni Research2, there have only been 4 instances where the market corrected more than 10% since 2009.

  • 2010: (16%), 70 days
  • 2011: (19.4%), 157 days
  • 2015: (12.4%), 96 days
  • 2015/2016: (13.3%), 100 days

The Fed will likely end QE, which should cause rates to rise. But, we expect rate increases to be minimal. Equity Investments – improving growth will continue in our view to drive profits higher. Volatility will probably increase because the Fed will be removing billions of stimulus from the market. As we have said in the past, any resulting volatility presents a buying opportunity for investors.

Risks that We Can’t Control or Predict

  • Tax Policy: We expect some sort of tax reform unfortunately, tax code simplification doesn’t seem to be a priority for politicians.
  • Healthcare Reform: This has been a huge unknown. It is a priority for the Trump administration but they do not seem to be making any progress. We will continue to monitor going forward.
  • Global Civil Unrest: No one can accurately predict when things may arise around the globe and the effect it may have on the markets.

While the first three quarter results of 2017 were strong, we foresee more volatility approaching year-end. In these cycles, our philosophy has long been to “drown out the noise” of media hype and focus on the things within our control. We concentrate on cash flow and future spending from client accounts; by anticipating expected spending needs we sell from fixed assets while investing remaining assets in growth funds. This softens losses and increases investment stability during a market correction.

Please let us know if you have any additional questions or would like to discuss your specific financial plan in more detail. If there has been any changes to cash flow, please let us know. This will likely change asset allocation within your specific accounts.

Sources: The Russell 2000 index is an unmanaged index os small cap securities which generally involve greater risks./Raymond James Quarterly Investment Update, “September ends a memorable quarter for markets/”Yardeni Research: https://www.yardeni.com/pub/sp500corrbear.pdf