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

Balance.  Seems to be the key to everything in life these days.  Balance between work and life, balance between food we crave and food we know is good for us, balance between sleep and finding time in the day for our to-do-lists, balance between down time and family/friend obligations.  At times, balance seems effortless.  And at times, balance seems an impossible feat.

The markets are a bit of a balancing act these days as well.  For the majority of the time, things keep marching along with strong earnings, positive economic data, and sound growth - and then, we are thrown off stride with a geopolitical event (ex: recent terrorist attacks in London) or a new development in the current administration (FBI director replacement or ongoing Russia investigation). How do we keep our balance?  While it's not easy, we recommend that you focus on the dominant weight (earnings, growth, and upward potential in the markets) and do your very best to not let temporary disruptions break your balance.

The Dominant Weight

Why does the good news overpower the noise these days?  Here are just a few of the factors we feel tip the scales in investing's favor

  • Market's journey since election day - The below chart shows that while there has been some recent pullbacks, the move from election day is still impressive and reminds us that pullbacks are healthy and part of the process.  We anticipate more in coming months as the Fed continues to raise rates and more political events inevitably arise.


  • Strong earnings - The mostly-completed earnings season, according to Bloomberg, saw close to 80% of companies in the S&P 500 beat consensus earnings estimates; while more than 60% beat on the revenue estimates, a high historical beat rate for top-line growth (which is harder to manipulate)


  • Favorable economic data - Economic data continues to indicate strength in the markets and the economy.  Some highlights:
    • Corporate confidence:  The Empire Manufacturing Index slipped into negative territory at -1.0, but the Philadelphia Fed Index surprisingly rose to 38.8 from 22.0.
    • Homebuilding: National Association of Homebuilders (NAHB) Housing Market Index (HMI) rose to a robust 70 from 68.
    • Productivity:  Industrial Production rose 1.0% in the most recent reading, the largest gain since August of 2014, while capacity utilization rose to 76.7, the highest level since August 2015. These data points can be volatile, but they are pointed in the right direction.
    • Overall:  Index of Leading Economic Indicators (LEI) continues to show a growing economy, posting a gain of 0.3% in the most recent readin
    • Employment: Initial jobless claims (an indicator of both consumer and business confidence in action) continue to be remarkably low, indicating a continued tightening labor market.  This historically low claims level, combined with the historically low unemployment rate of 4.4%, appears to be pushing wages higher. This should help to support consumer spending and, as was from earnings season, hasn't yet begun to dent corporate profitability.


  • Recent performance - here's a summary of recent market returns.  History may not repeat but it does tend to rhyme





While it's hard to know what will tip the scale from day to day, we choose to focus on the predominance of evidence that points towards continued growth and opportunities to build wealth.  Sure, the balance will tip from day to day and volatility will never go away.  Observe it and stay the course - the tide will soon turn and balance will be regained.

Invest on,