02 Mar February, 2017 Review and Outlook
Highlights of this Month-End Review and Outlook:
- Be sure to take advantage of the available “CSV” file to download 2016 transactions for your tax return.
- Monthly distributions from Trust Co. of America accounts are processed on the 25th of each month OR the next business day if on a weekend or holiday.
- Markets continue to rise on hopes of lower taxes and better economic growth.
- Interest rates edge higher.
- Markets could continue higher IF expected economic/tax plans actually materialize.
READ ON FOR FURTHER DETAILS…………………………………………………….
REMINDER: 2016 TAXES:
Be sure to take advantage of the “CSV” file that is available to download the transactions for taxable accounts into most tax preparation software programs. This can save you and your tax preparer both time and money! We can set up a link for your tax preparer to automatically download this file when preparing your taxes. All we need is for your authorization and the name and email address of your tax preparer, and we will do the rest!
Monthly Distributions from Trust Co. of America Accounts:
If you receive regular monthly distributions from an account at Trust Co. of America please remember that the funds are sent directly to your bank on the 25th of each month UNLESS the 25th falls on a weekend or Holiday. If that occurs, the distribution is sent the NEXT BUSINESS day. For example, in December of last year, the 25th was Christmas Day but it fell on a Sunday and Monday the 26th was actually the business Holiday, so distributions were processed on Tuesday, December 27th. This past month, February 25th was on a Saturday, so again the next business day was Monday, February 27th and that is the day the funds were sent out from Trust Co. of America accounts. If you have any questions regarding this procedure, please don’t hesitate to call.
The Dow Jones Industrial Average1 ended February on a negative note, snapping a 12-day winning streak of record closing highs. Looking back at market history, the Dow came up one day short of tying a record of 13-closing new highs achieved in January 1987 (Gluskin Sheff/Business Insider). For the month, the Dow was up 4.77% and is now 5.31% higher than at the beginning of the year. The Standard & Poor’s 500 also rose in February, gaining 3.72%, pushing the 2016 return to 5.57% through the first two months of the year.
Interest rates eased slightly in February, with the 10 year U.S. Treasury yield ending the month at 2.36%. Over the past two days, however, yields have started to rise again, with the current 10 year yield at 2.49%. This compares with 2.45% at the start of this year. (U.S. Treasury, CNBC) Mortgage rates now stand at an average of 4.04% for a 30 year fixed mortgage, and 3.2% for the 15 year fixed rate. (Bankrate.com)
The price of oil rose in February, to end the month at $53.94 per barrel for West Texas Intermediate Crude, but has since eased back to $52.74 today. This compares with $53.89 per barrel on December 31, 2016. (CNBC)
We have been pleased with the overall nest results for our client portfolios so far in 2017 relative to risk, and continue to remain positive on stocks/equities in general at this time. We continue to monitor the markets and economic data and will make adjustments as warranted moving forward.
The latest run for stocks can be traced back to comments made earlier in February by President Trump. Following a very restrained “affirmative” on tax reform during a pre-Super Bowl interview with Fox News’ Bill O’Reilly, Trump quickly shifted gears and said he expected a “phenomenal” tax reform proposal within two to three weeks. That remark occurred on February 9 (CNN, the Hill.com).
Details were lacking but the stock market rally gained new momentum from that point forward.
Fed Chief Janet Yellen offered a similar suggestion a couple of weeks ago when she was asked during her semi-annual testimony before two Congressional committees what she thought was driving stocks. “I think market participants likely are anticipating shifts in fiscal policy that will stimulate (economic) growth and perhaps raise earnings,” Yellen opined. Fiscal policy is simply another way of saying tax cuts and infrastructure spending.
So, what happens if Congress deadlocks and nothing gets passed? Worries abound that investors are front-running changes in fiscal policy that may not occur. Washington does not work like a well-oiled machine and compromises must still be hammered out. Odds are low at this point, but if the gears get gummed up and Congress fails to implement reforms, volatility is likely to ensue. What type of short-term fallout we might experience is difficult to forecast.
We need to remember that investors look to the future, using their collective wisdom (via buy and sell decisions) to discount potential events. It may not be a clear path, but at this juncture, there is the expectation reforms will eventually make their way to the president’s desk for his signature.
Politics and the victory of Donald Trump (and a Republican Congress) have dominated the narrative since election day. Hindsight is 20-20, and it seems obvious today that investors would warm to his pro-business stance. His more controversial positions have done little to derail stock prices as of this date.
Eventually, we suspect the political storyline will run its course and the longer-term driver of stock prices will once again take center stage. In fact, we’d venture to say it’s already playing a role.
Longer term, it is profits and the expectation of profits that drive stocks. Figure 2 highlights the close relationship between S&P 500 earnings and the S&P 500 Index.
By and large, it’s earnings that drive stock prices. In fact, the correlation between S&P 500 profits and the S&P 500 Index is an incredibly high +0.94, where +1.0 would mean the two variables perfectly mirror each other, and -1.0 would mean the two variables move in exactly the opposite directions. A zero simply means there is absolutely no correlation between the two variables.
In other words, Figure 2 is a graphic illustration that demonstrates profits are the biggest long-term driver of stocks. Sure, other factors can come into play in the short term, but investors buy and hold shares for a firm’s earnings and expected earnings.
We appreciate the privilege to be of service and look forward to working with you in the years to come. Please call at any time if you have any questions or if we can be of further service in any way.
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.