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

Narrow.  That's one word to describe the trading range of US markets in recent weeks, or even months.  It seems any downward movement in markets are quickly reversed and any upward swing retreats (at least slightly) in a short time.  This is healthy market movement and the results have been favorable, as shown in the latest market returns.


Why are markets behaving this way?  Despite the headlines and the seemingly incessant overhang of pessimism and worry, markets have several things going for them, including:

1.) Return to fundamentals - the companies that make up the equity markets are on stronger footing than they were, even a year ago.  A recent report from Thompson Reuters reports that first quarter earnings are expected to be up almost 15% year over year and that of the 412 companies in the S&P 500 that have reported, 75.2% have beat analyst expectations (historical average is 64%).  

2.) Certain sectors lead the way - there are certain sectors that are outpacing others and helping to bring the broader markets with them.  Technology and consumer discretionary are chief among them and show no signs of retreating anytime soon

3.) Supply and demand - as we discussed last month, there is still an overwhelming amount of money (think trillions) that has left US equity markets throughout this epic bull run.  And as markets offer slight corrections, some of these funds are coming back in - bringing prices right back up (as demand rises, prices rise).  We anticipate this trend to magnify as interest rates trend upwards and fixed income investors rotate into equities in increasing number

4.) Relative stability at home and abroad - we do not overlook or discount the potential for instability and black swan events that remains around the world (especially in North Korea and Syria).  We have a new political regime at home and that too introduces new risks and unknowns.  These risks will always remain to some extent and cannot be completely hedged. However, recent developments (such as the French election results, US administration making some progress of tax reform and healthcare) give some current peace of mind to markets and allow forward progress to continue.

We know we continue to say this, but it remains a great time to be invested.  Markets may be in a narrow band, but you are already on board and can continue to enjoy the ride.

Invest on,