Wednesday, May 2, 2018

CIO Monthly Market Outlook - May 2018

Mark K. Nickel, CFP, CIO
Author position
Chief Investment Officer

Leadership is necessary, but change is inevitable. You may have experienced this firsthand, whether it was a new principal at your school or a new leader at your company. Sometimes transitions are seamless, such as Tim Cook’s succeeding the late Apple visionary Steve Jobs. Sometimes a handoff is more complicated, such as Tubby Smith to Billy Gillespie to John Calipari (for college basketball fans out there). Fortunately, equilibrium typically re-emerges in time.

Markets experience changes in leadership too as regulations evolve or business cycles mature. A change may to be playing out currently, with the Technology sector faltering a bit recently. The Investment Strategies Group (ISG) believes investors can benefit from changes in market leadership by periodically re-balancing and maintaining a diversified portfolio – activities your Wealth Advisor is equipped to execute.

Back to basics: Two themes dominated this month’s ISG round-table: the Q1 earnings season and the 10-year Treasury yield.

  • Corporate earnings thus far have been strong, with companies benefiting from broad economic momentum and reduced tax burdens: The S&P 500® companies are expected to grow EPS by 18.5% in 2018, well above long-term annual averages.
  • The 10-year Treasury yield recently reached 3%, for the first time since 2014. Interest rates across the maturity spectrum have risen in concert with several Federal Reserve rate hikes and rising inflation expectations. Three percent may be a psychologically important number. But for now, the rise in yields has not materially altered ISG’s broad investment outlook, which remains constructive.

Geopolitical equilibrium? ISG is heartened by less-heated tariff and trade rhetoric between the United States and China and by recent developments on the Korean Peninsula. That said, points of concern remain, such as renegotiation of the Iran nuclear deal – and geopolitical situations can change quickly.

Opportunities: Relative valuations keep ISG interested in inter-national securities. We also support rotating toward value-style investments (versus growth), given their relative under-performance this market cycle. ISG sees opportunity across the energy and commodity sectors as well, based in part on rising oil prices. ISG is actively working with your Wealth Advisor to identify solutions that reflect these themes.

Leadership changes in life and across financial markets can be trying, but new leadership typically emerges, rewarding those who remain diligent during transitions. Your Wealth Advisor is well equipped to help you understand current markets, and can position you effectively.

- Mark Nickel, Chief Investment Officer

Name to Know

Emmanuel Macron, President of France

Emmanuel Macron, 40, was elected President of France in May 2017, running on a centrist platform. His prior experience includes stints as an investment banker and bureaucrat. Macron is of note this month in the wake of his state visit with the President Trump. He seems to have a strong personal rapport with the US president, and is seen as a possible mediator between the United States and the EU. He may also be influential as the United States looks to renegotiate the Iran nuclear deal; Macron has taken a strong anti-terrorism position, but is against escalating Middle East tension.


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.