View from the Chair: Windermere's Market Perspectives (July 2017)

Summary of Market Performance June 2017.jpg

Just like that, we’ve sailed thru six months of 2017.   The tumultuous waters of 2016 (remember market correction to start the year, Brexit, and the election?  Perhaps not) seem like a distant memory and 2017 has marched ahead without hesitation.  Smooth sailing so far this year– but what waters lie ahead for the rest of 2017? 

 

Point in the Harbor

As we dock at the midpoint of 2017, It’s safe to say that from an investing perspective (especially one with an equity focus), we find ourselves in a far better than expected.  Global equities have experienced incredibly strong results, with the emerging markets being standouts as commodity prices stabilized, the US dollar retreated, and the middle class in those regions continued to experience rising disposable income. 

The global economy is on pace for one of its best years in more than half a decade.  All of the world’s top 20 economies are growing so far this year, which is boosting growth across the emerging markets. International markets are also relaxing a bit as the protectionist rhetoric that loomed large during the election and early this year has been tamed. 

US equities also standouts, rising over 8% (as measured by the S&P 500) and experiencing near record-setting low volatility, despite the heightened geopolitical concerns and ongoing political sagas at home (firing of FBI director, ongoing investigations into the election and Russia ties to name a few)

The US economy continues to glide along.  As a Schwab market update recently stated, the growth is more reflective of a pontoon boat than a speed boat.  Growth keeps slowly trending upwards, which is actually good for the economy as it keeps inflation low and monetary policy easy. Earnings have also been strong, which has contributed to a large portion of the market’s advance.

The Waters Ahead

All the factors above, as well as careful stock and sector selection and a bit of good timing and good fortune, have gotten us to this point.  But what will the rest of the year brings?  We anticipate a two-step forward, one-step back movement, where slight pullbacks will continue to occur as geopolitical tensions remain and monetary policy “experiments” from the past several years continue to be unwound.

Further, from a political perspective, there remains a considerable amount of work yet to do.   Despite bold statements and brazen Congressional initiatives during election season and the first 100 days, there has yet to be many accomplishments.  Healthcare reform continues to be debated.  The grand tax reform proposals seem to be stalled.  Little progress has been made on infrastructure.  The promised rollback for burdensome regulations has yet to appear.   Should any of these initiatives be implemented, we could see material market reactions.

Sail On

Where does this leave us?  Our advice remains the same as it has been -  “Sail on” my friends.  We see mostly steady waters  - but it won’t be without some waves.  After all, the long-term compounding of wealth requires a clearly-charted course, patience, experience, and a little luck from the “sea” .