The Trump Rally continued its advance in the first three months of the year as broad market indices breeched new record highs in March before giving back some of the profits. A positive reaction to financial, fiscal and economic activity appears to leave room for more advances later in the year.
Review and Commentary
Remember this time last year? The market was in the midst of a sharp decline finally reaching a bottom in February of 2016 after the broad market S&P 500 had declined by about 11% for the year and as much as 14% from its previous high in November of 2015. Action like that causes us to make two observations; first, markets often tend to overreact in both directions and a normal stock market correction from current levels would not surprise us.
As you know, we at VisionQuest never seek to make predictions about the financial markets, economic or world events. We may offer judgements or possibilities, but we have no predictive capabilities and claim none. As an example of why we take this position, let’s consider the following events: The sell-off earlier in the year was attributed to several factors including rising oil prices, weak economic data, difficulties in China’s lagging economy and more. It is probably worth noting that these events were not predicted nor expected to be significantly relevant as 2016 began. Also, proving the difficulty of predicting global events were two major events; the emergence of Brexit and a victory in the presidential election by Mr. Trump. I can’t recall either of these events being forecasted or prophesied.
In our last commentary, we noted that we were cautiously optimistic that the S&P 500 would continue its advance over the near-term. We made note of significant elements of the Trump agenda including corporate tax reform, job creation, stimulants to economic growth, modest inflation and a comfort that we were not headed into a recession. Today, less than 100 days into the Trump presidency we and “The Donald” are learning how difficult it may be to work with Congress. Dramatic change was both offered and needed by Trump, but even Republicans are doing little to support his efforts. Issues we hope to see resolved or at least advanced include Supreme Court nominees, improved relations with Russia, and the rest of Europe, more jobs, tax reform, positive trade negotiations, and revisions to Obamacare. These issues may have short-term influence on the direction of markets and pricing of financial assets.
We have seen the trend toward higher interest rates start to take hold. The Federal Reserve may remain accommodating after two or three rate increases; however, if housing would continue to lag, additional rises in interest rates could discourage home buying. On the other side, rising rates may make the US Dollar more attractive and clearly after the election, we saw the dollar’s value rise around 4% against a basket of other world currencies. In many ways this is good, but the downside is that it could cause our export industry to suffer if we experience another such run up in the overall value of our dollar. Several positive economic data points have emerged which may interest you and you can certainly see those trends in our most recent April Economic Update by Jon Gauthier which was posted on our website www.vqwealth.com.
What is important to understand is that investors and financial markets have reacted to the Trump election with much enthusiasm and optimism and we would not be shocked if over the next few months, the ups and downs of politics and legislative processes become frustrating as reality sets in around activity in Washington. If more progress on the Trump agenda fails to appear, we would expect to see increased selling (profit-taking) and this means market volatility in the upcoming months. We encourage you to recognize that short-term valuations and gyrations have little to do with long-term returns based on your personal financial goals.
We know that valuations will fluctuate as earnings, economic data and interest rates adjust to changing market and economic conditions, but only time will tell us if current market valuations are accurate. At VisionQuest, we select managers to manage assets for our clients and we know these managers are experienced and skilled in all financial markets and economic conditions and they will continue to seek opportunities to buy undervalued holdings to benefit our investors and clients.
The first few months of 2017 have been rewarding for all of us. And for your benefit, we will continue to examine our managers, their holdings, and your portfolios as we seek to position and maintain client assets in quality portfolios that grow. While we cannot assure you that our efforts will eliminate short-term corrections and volatility, we will continue to use the dedication, experience and knowledge of our Investment Committee as we work to help you achieve your goal-based financial objectives. If you have questions, concerns or comments about this commentary, please feel free to contact me at any time.
Randall C. Griggs, CFP®, AAMS®, AWMA®
Investment Committee Member
VisionQuest Wealth Management, LLC