In the 2nd quarter of 2017, reality set in for the Trump administration. This reality came in getting major reforms passed through Congress and specifically, health care and tax policy changes. And although this temporarily put the “brakes on” a more significant market rally for all of us, there was enough good news coming from company earnings reports and consumer confidence surveys that the S&P 500 index notched up a 3% gain for the quarter – giving us an 8% gain for the year for this benchmark.
During a normal year for the stock market, the summer months of July and August are typically referred to as the “Dog Days of Summer” as there are not many catalysts that move the markets. However, this year could prove different as this administration is not shy about stirring the pot so we will be monitoring the news coming out of Washington that could affect the markets and your portfolios.
Looking Back: Review and Commentary
The first half of this year has been great for most stock investors. Interest rates have remained low, keeping bond prices high and this has enticed investors to put money into stocks, if they desire any decent rate of return. Additionally, this has provided a floor for stock prices that mitigates any market drops so far for the year.
On the negative side for the quarter, job growth surprised us a little. Having said that, one of the numbers that surprised us or which was a little disappointing was wage growth as it was almost non-existent. To us, what this means is that salaries are not increasing as companies continue to grow and become more profitable, but hopefully, this will start to improve going forward and something worth monitoring.
On the other side, markets outside of the U.S. have showed signs of positive economic performance and both Europe and Asia have shown signs of stability as well as growth in their economies. This is important as this has been a real change for these markets as they have trailed our growth for the past six months.
With that, markets tend to revert to their averages – meaning markets will eventually reverse course and head back toward their averages. This is not a prediction as markets can continue in one direction for a lot longer than what seems rational until some catalyst sparks them to reverse course. At this time, I’m not predicting any changes that would cause significant changes to your portfolio, but we are always looking ahead.
As we look ahead, the major catalysts that can move the markets over the next quarter are major tax policy changes or health care reform. In the short-term, those two areas can create market volatility, but I’d be surprised if anything happens for the rest of the summer.
Other factors that we will continue to monitor are the results from the ongoing investigation of Russia’s involvement in last year’s presidential election. At this current time, we see this factor only causing short-term volatility, but we’ll be monitoring these proceedings intently.
In the end, most of these factors will only cause short-term volatility to the markets and your portfolios. Nevertheless, we will continue to review our portfolio models and asset managers to put your portfolios and you in the best position to help you reach your financial and life goals. While we cannot assure you that our efforts will eliminate short-term corrections, we continue to use our team’s experience, knowledge, and data in helping you achieve your goal-based objectives.
If you have questions, concerns or comments about this commentary, please feel free to contact me at any time.
Joe Baker, CFP®
Chief Investment Officer
VisionQuest Wealth Management, LLC