News & Insights
Strong 1st Quarter for the Markets as Economic Recovery Continues and Confidence Soars: Sit Tight or Bail?
YorkBridge Investment Committee
April 15, 2017
Earnings growth is typically the driving force of long-run bull markets, but in the short-term, anticipation of positive change like that seen since the election of President Trump can have a major impact. The hope of meaningful tax reform, deregulation and infrastructure spending has sent consumer and business confidence soaring, and with it hopes of a sustainable virtuous cycle that increases spending, wages and employment, and ultimately, earnings.
However; major setbacks for Trump early on – travel ban overturned by the courts, healthcare plan rejected, an ongoing and quite serious investigation into Trump campaign ties to the Russian government and by implication, the president himself – has created skepticism and uncertainty about what the administration can actually get done. Markets are temporarily off their highs, and the value, cyclical and small cap stocks that roared in the last few months of 2016 in anticipation of rapid implementation of Trump’s policies, have meaningfully underperformed US large cap growth stocks in the first quarter. The S&P 500 total return for the quarter was 6.1%.
While US Stocks are not cheap as measured by historical norms, they are not expensive either vis-à-vis low interest rates, and there is no hint of recession looming. For the first time since ’09, we have a synchronized and self-reinforcing global recovery, with three major regions – Japan, Europe, and China — all turning higher. The 2015 recession in manufacturing, energy and the industrial parts of the country has ended as well. The steady improvements in earnings and growth and most importantly, revenues, over the last year appears to be accelerating regardless of what the administration can get done.
With lows in global interest rates made in mid-2016, an era of low volatility and high cross asset correlations that mocked traditional diversification principles and frustrated active managers, has likely come to an end as the global economy experiences a powerful cyclical upturn. Just as the stampede to passive management accelerates to Mach 1 speed, the rewards of tried and true diversification principles and active management are beginning to re-assert themselves as we return to classic economic and market cycles: more than 50% of active managers are outperforming year-to-date.
For now, that means stay long, and be ready for more – while remaining ever vigilant — and pick those sectors and stocks that have sustainable growth trajectories and valuations that will reward patient investors, and look to overseas for a well-rounded portfolio. Later this year, as the powerful shift in sentiment and economic momentum peaks, it may well become time to re-evaluate.
As always, your questions and observations are welcome, and we continue to invest and monitor your portfolios ever mindful of the larger picture.
The information contained in this document is based on data received from third parties which we believe to be reliable and accurate. YorkBridge Wealth Partners, LLC is, has not independently verified the information and does not otherwise give any warranty as to the truth, accuracy, or completeness of such third party data, and it should not be relied upon as such. Any opinions expressed herein are our current opinions only. YorkBridge Wealth Partners, LLC is an SEC Registered Investment Adviser under the Investment Advisers Act of 1940 (“Advisers Act”). Registration of an investment advisor does not imply any specific level of skill or training. The information contained in this document is to assist with general planning. Please consult with your own tax advisor and attorney for more specific information.