Archive for 2017

June 2017 Quarter Review

The second half of 2017 ended with strong gains and surprisingly little volatility. All the major indexes added to first quarter gains with the technology focused NASDAQ continuing to lead. Corporate earnings have lived up to positive expectations driving eight of ten sectors higher. The S&P 500 closed the second quarter up 8.2%. The Dow Jones Industrial Average ended the quarter up 8.0% while the NASDAQ Composite finished up 14.0%.

In 2017, it appears that earnings will increase dramatically after several years of sideways performance. As the U.S. economy improved after the 2008 recession, analysts forecasted accelerating earnings. Every year the initial forecast hit a new high mark only to be slashed as the year progressed and companies came up short. The 2018 estimate is noteworthy in that it breaks the trend with only a minor revision. As companies report 2017 earnings results we will watch the 2018 estimate changes carefully. If the $145.87 is significantly too optimistic we will see a correction. However, if the estimate holds up, stocks could still move higher year and still appear reasonably valued.

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March 2017 Quarter Review

The first quarter of 2017 started out with solid but uneven gains. All the major indexes gained ground with the technology focused NASDAQ gaining the most. The quarter began with optimism for the economy, with expectations of strong earnings growth and the real prospect of favorable economic policies from Washington. The S&P 500 closed the quarter up 5.5%. The Dow Jones Industrial Average ended the quarter up 4.6% while the NASDAQ Composite finished up 9.8%. From the market’s bottom during the financial crisis on March 9, 2009, the S&P 500 has increased 249%.

Some of Wall Street’s optimism has tempered after the failure to repeal the Affordable Care Act (ACA) coupled with increasing geopolitical risks. Also, weighing on the market is the coming French election and the anticipation of tighter monetary policy by the Federal Reserve. Stocks were driven higher in the first quarter with the expectation of favorable economic policy out of Washington, namely tax cuts, and accelerating earnings growth in 2017. The failure of the ACA raises questions as to whether the more substantive economic policies will be enacted anytime soon. Combined with increased potential of geopolitical risk and tighter monetary policy, we expect investors to reassess the outlook. This does not mean that we are due for a correction or that the eight-year bull market is “tired”. Stock prices are valued based on earnings and the outlook for earnings has been very positive going into 2017. Concerns about geopolitical risk, for example, don’t directly or immediately impact earnings, but if they blow up into a real global crisis that reduces demand or makes operating business more expensive, then future earnings are affected and equity prices need to be readjusted accordingly.

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December 2016 Quarter Review

After a volatile year the major indices ended 2016 with solid
gains. Strong gains in the third quarter were added to in the
fourth quarter as investors bid up industry sectors perceived
to most benefit from a Trump administration and now Republican
controlled Congress. The S&P 500 closed the quarter
up 3.3% to record a gain of 9.5% for the year. The Dow
Jones Industrial Average ended the quarter up 13.4% for the
year while the NASDAQ Composite finished up 7.5%.

The year started 2016 in freefall with the S&P 500 closing on
February 12th, down 10.5% from the start of the year only
six weeks earlier. Investors with the nerve to buy on the
dips were once again rewarded as the market moved higher
as the year progressed. Ironically, the panic back in February
was precipitated largely by the new nationalism movement
that seems to be spreading around the industrialized nations
of the world. 2016 was bookended by two surprising
elections. The first was BREXIT. The last of course was
Trump.

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