Wednesday, March 28, 2018

CIO Monthly Market Outlook - March 2018

Mark Nickel
Author position
Chief Investment Officer

A Focus On Foundations

For millennia, mankind have been builders. Across centuries, artists and architects, masons and carpenters have built greatness. Achievements range from a Great Wall in China to a great dam in the Nevada desert, and from the Great Pyramids in Egypt to Giza’s somewhat skinnier cousin standing tall on our National Mall in D.C. Marvels erected over time are varied and unique, in both appearance and utility (or lack thereof; looking at you, Mr. Sphinx). The main thing they all have is a strong foundation.

Realizing any vision requires a strong base to build and grow from. Our clients have a range of visions, such as funding education, building a dream home, retiring without worry, or philanthropic endeavors. As varied as these modern goals may be, similar to the great construction feats across civilizations, we believe wealth plans for each must have a strong foundation – for our purposes, constructive economic fundamentals.

  • Volatile or solid? A chilling return of financial market volatility in February prompted us to reevaluate the current fundamental economic landscape at this month’s Investment Strategies Group roundtable. ISG does not believe an unsettling past few weeks of trading correspond well with fundamentals. Recent inflation data remains tame, consumer elements (such as confidence and spending) are strong, industrial activity remains near cycle highs, and the US economy continues to add jobs at monthly rates of 180k-200k. We also believe that recently enacted tax cuts will further boost near-term US economic activity.
  • Tax cuts and earnings: Most US corporations reported quarterly results in February, with a common theme being increased expectations due to the Tax Cut and Jobs Act. As a result, consensus now expects S&P 500® earnings to increase by over 18% this year – nearly double the rate expected just a few months ago. Coupled with an unfolding pullback in stocks, ISG is somewhat more comfortable with US equity valuations, although the market is still not particularly cheap.
  • Opportunities: While ISG remains tactically sanguine in the US, we continue to see good relative value internationally, and in value-oriented stocks; both have underperformed so far in this market cycle. Amid volatility, opportunities have emerged in mid-range fixed income investments (3–7 years) due to the rise in interest rates.

Achieving long-term financial goals, whatever they may be, can be a formidable task. Individual plans will vary, but we believe the necessary economic foundation remains in place for you and your Wealth Advisor to successfully execute your tailored strategies.


Name to Know

Wilbur Ross - US Secretary of Commerce 

Wilbur Ross, 80, has served as Commerce Secretary for the last year. Before entering public service, Ross was known for private market and distressed asset investing. Ross is of note this month with the recent announcement of trade tariffs on imported steel and aluminum, which are major inputs across a range of consumer and industrial goods. The Commerce Department plays an integral role in managing US trade relationships and in suggesting policy positions.


Important Information about This Newsletter
Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.
Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversification and asset allocation do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.