1st Quarter 2017 Investment Newsletter 

Economic and Market Overview

  • International stocks, specifically Emerging Markets, were the best performers in the 1st quarter of 2017.
  • Developed international countries such as Japan, the Euro-zone and Australia are slowly returning to inflationary mode, with rising business and consumer confidence.
  • Emerging Market stocks have benefited from global growth and relatively lower valuations. Russia and Brazil are emerging from recessions, and China’s massive stimulus has slowed its economic decline. The rally in Mexican stocks and the strengthening of the Peso during the quarter surprised many.
  • US stocks continued their rally during the quarter, led by technology stocks. Business Roundtable’s CEO Economic Outlook Index surged in the quarter with its largest jump since 2009.  Consumer spending has continued to grow at a 3% annualized rate over the last 2 quarters, and household debt has continued its steady decline.  However, the surprising laggards in the quarter were mid and long-term interest rates, adding a little uncertainty to the resurgence of US inflation and growth.
  • The S&P 500 and 30-stock Dow Jones Industrial Average marked their calmest quarter in 50 years, as measured by volatility. The average daily move up or down in the quarter was a mere 0.3% for both indexes

Proposals for Lower Corporate Taxes and Market Expectations

  • House Republicans have proposed cutting federal corporate income tax rates from 35% to 20%. All else being equal, lower taxes would mean higher after-tax corporate earnings, which could make US stocks more valuable.
  • An open question is how much the market has already priced in the value and timing of the proposed cut. If investors overestimate the benefit of a tax cut, expect it too early, or Congress is unable to offset the lost revenue, US stocks could lose some of their recent gains.

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Market Index Returns QTR 1  
S&P 500 (Large Cap)     6.1%
Russell 2000 (Small Cap)     2.5%
MSCI International Index      7.0%
MSCI Emerging Markets    11.5%
DJ US REIT Index (Commercial Real Estate)     -.3%
DJ Commodity Index     -2.3%
1-3 Year Bond Index        .4%
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