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Commentary

Cycles & Expansions

June 21, 2018

If the current bull market for the S&P500 sustains through this upcoming August 21st it will be the longest on record, but in terms of cumulative return this current run ranks only third highest. When viewed through the lens of economic data, the current expansion is the 2nd longest in the history of the United States but in terms of cumulative real GDP growth during economic expansion periods we haven’t even cracked the top 5 list. Compared to the average expansion, we’ve seen a slower and more controlled rate of growth than in the past and we agree with the Wells Fargo Investment Institute’s assessment that there’s sill some gas left in the tank to continue the trudge higher.

We know at times we must sound like a broken record, but we continue to advise our clients not to be intimidated by bouts of sharp volatility. There’s noise and chatter seemingly everywhere, but we believe the underlying corporate and economic fundamentals currently support a healthy investment environment.

The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgement of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

Previous Commentary

Are We There Yet?

May 3, 2018

Within the capital markets, the month of April was nothing short of busy.

The major equity markets oscillated as investors were barraged with a deluge of corporate earnings releases. Of the half of S&P 500 companies that reported Q1 earnings through the end of April, 80% saw earnings earnings-per-share (EPS) numbers come in above analyst estimates – the highest rate in 20 years. Consumer confidence also unexpectedly rose as the Conference Board’s consumer confidence index 3-month average reached a high water mark not seen in almost two decades. The good news wasn’t enough to convince equity market participants, as the major U.S. indexes ended the month with nominally flat performance.

Meanwhile, the fixed income markets faced a flattening yield curve that saw the U.S. 10 year treasury rise above 3% for the first time since January of 2014. Increased government debt issuance needed to meet the demands of a growing federal deficit continues to stoke the concerns of bond investors who have seen short-term rates move up noticeably while long-term rates changed relatively little. For a more comprehensive recap of the month, please read the attached report.

As the S&P 500 continues to progress well into the second-longest bull market on record, mid-to-late-cycle jitters will likely continue to nag investors who are anxious to catch signals that the party’s over. After all, even at the most oppulent of soirees no one wants to be the last guest standing around the punchbowl. However, in staying with the metaphor for just a moment, seasoned partygoers often plan ahead to limit the potential downsides of their evening. Instead of waiting until the last minute to order an Uber ride home that might never arrive, the more prudent guests arrange their transportation ahead of time even if it might cost a little bit extra to have a car waiting. Predicting when the party ends isn’t their main concern; getting home safely and on their own terms is.

We encourage our clients to remain focused on their long-term goals and the appropriate allocation mix to get them there. Even though the figurative band has been playing for hours and is showing little signs of pausing, having a well-developed and tailored plan in place will help guide you through the next break in song – whether it’s just an intermission or the encore.

Monthly Market Commentary by Dan Miller

The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgement of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

Trade Wars and Tech

April 3, 2018

The second quarter has gotten under way with equity investors decidely playing the defensive. As of Monday morning, selling pressure across the board is being observed in reaction to retaliatory tariffs from China and the recent decline is continuing in tech shares that have led the markets over the last year.

In a direct response to the recent U.S. import tariffs on steel and aluminum, China has increased import duties on a $3 billion list of U.S. pork, apples, and other products. It is our opinion that the market’s concern is not necessarily focused on the nominal size of the newly announced tariffs, but rather that the likelihood of trade tensions worsening and tit-for-tat actions from both countries have increased. In relative and economic terms, we believe this protectionist move from the United States’ largest trading partner is not very sizable when compared to the $150 billion of U.S. goods the country imports each year. We would argue that in the context of a trade war these actions are categorical warning shots and not full-on artillery barages designed to inflict real harm. With the Trump Adminstration clearly favoring bilateral trade negotiations over a multilateral approach, as was observed with the United States’ exit from the Trans-Pacific Partnership (TPP), we believe the tariffs on both sides are intended to function as negotiating tactics, but investors will continue to watch closely to see which side might blink first. Please read the below report from the Wells Fargo Investment Institute for further commentary on this subject.

The technology sector saw a wide sell-off Monday. Data security concerns surrounding social media platforms continue to pressure the sector that as the end of Q1 experienced a 1year return of over 27%, well above the S&P500’s total return of almost 14% for the same time period.

This kind of volatility is not uncommon for the type of late-cycle economic expansion we believe the U.S. is currently experiencing. We talk often, perhaps ad nauseum, about the importance of diversification in accomplishing long-term financial goals and these recent market developments point yet again to that value. While we openly acknowledge that sharp, short-term gyrations are always difficult to sit through, it’s important to note that the world’s population continues to grow, companies continue to operate more efficiently, and global economic growth continues to be very much in an uptrend. Countries squabling and positioning around their competive trade terms in nothing new, and we believe that the powers-that-be on each side of the Pacific know that both have too much skin in the game to engage in an all-out, no holds barred, trade war. Adam Smith, widely known as the father of modern economics, once said that “Every man lives by exchanging” – he may have been on to something…

Rising Tariffs--Trade War or Negotiation Technique? by Craig Holke

The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgement of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

Fickle Financial Markets

March 1, 2018

Initial claims for state unemployment benefits recently registered the lowest level since December of 1969. Employee wage growth is finally starting to pick up some steam after stagnating for years. Corporate America is in the early innings of a favorable new tax environment that should save them countless dollars. At surface level, the fair assumption is that these are all good things… but does the stock market always react favorably to what most view as inherently good news? Do negative headlines involving terms like “trade wars” or anything political override and negate all the positives in the economy? Scott Wren, the Senior Global Equity Strategist for Wells Fargo Investment Institute, provides his perspective on the subject in the below report.

While it’s natural to get concerned when stock market returns oscillate, it’s important to remember that it’s not only normal for markets to pull back from time to time but that it’s also a healthy function of the financial system. We know it isn’t always easy, but keep your investment time frame in perspective and focus on how you’re positioned relative to your needs and goals. Warren Buffett once famously said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” After all, it wouldn’t be much of a “market” if prices only ever went up, would it?

Some of What's Good is Bad...For Now by Scott Wren

The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgement of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

What a Week

February 9, 2018

The long wait for an uptick in volatility came to a close this week with the major U.S. stock market benchmarks entering the first technical correction since early 2016. Most investors we’ve talked to this week have had one fundamental concern around the recent market activity - “Is this a signal of a larger downtrend?” We don’t believe so.

A market correction is defined as a 10% drop in price and in the vast majority of historical instances are a sign that the capital markets are healthy and functioning. They can indicate overall profit-taking and are not a reliable indicator of a Bear Market. Bear markets, which are longer-term periods of falling stock prices and general market pessimism, usually coincide with economic recessions where we would generally see two back-to-back quarters of negative GDP growth.

To draw an analogy, if you view a complete market cycle as a marathon race then a market correction is similar to stopping for a water break and taking a breather, and a recession would be dropping out of the race altogether. What we saw over the last two years through this week could be compared to a marathon runner sprinting the middle to later stages of the race, and then reassessing their strategy and tempo as they turn a corner and see the “10 miles to go” sign.

According to the underlying economic fundamentals and corporate earnings data, we’ve still got some metaphorical miles left to go in this investment marathon. For additional detail on the current investment and economic landscape, please click here to read the article written by Brian Wesbury, Chief Economist, and Robert Stein, CFA of First Trust.

The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgement of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

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