Broker Check

2017 - 3rd Quarter

Stock markets worldwide continued to rise in the third quarter of 2017.  Year to date through September 30, 2017, the S&P rose 12.53%, the NASDAQ was up 22.94%, the EAFE up 17.21% and the MSCI Emerging Markets up 28.14%.  On the fixed income side, the Barclays Capital Aggregate rose 1.42% for the same period.  Thus far in the fourth quarter stocks have continued to rise albeit with some down days and even a down week or two.



Our economy continues to grow slowly.  US GDP is expected to remain in the 2% to 2.5% range.  Most economists I follow don’t expect a recession in 2018 and many predict continued growth well beyond 2018.  Our economic expansion has now lasted 101 months, the third longest economic expansion in US history.  The “slowness” of our recovery may very well be a key factor in the “length” of our recovery.  Unemployment now stands at 4.1%, the lowest it’s been since February 2001 and wages are rising at 3.2%.  However, that isn’t across all income levels as the lowest paying jobs are experiencing the largest pay raises. For example, restaurant workers are currently averaging more than 5% annualized wage increases whereas high end managerial workers are averaging 2% or even less in annualized wage increases.

Simultaneously, major economies and businesses around the world are growing.  This hasn’t happened since 2010.  Possible reasons for this include: a move toward quantitative easing (instead of austerity) by major governments and the rising price of select commodities most notably oil.  Emerging markets (China, India, Mexico, Indonesia, et al.) are growing faster and are likely to continue to do so because many of their citizens are moving into the middle class and are just beginning to buy items that we take for granted like cars, appliances and homes.


Both the House and the Senate have now passed their versions of a proposed new tax bill.  It’s not over yet; now the GOP must draft a final proposal that will pass both the Senate and the House.  Once passed, the final proposal will then go to Donald Trump to sign into law.  Since we don’t know the final version of the proposed tax law yet it’s premature to do much planning. 

A controversial provision that appeared in both the House and the Senate versions would disallow the deduction of state and local income taxes on the federal return. This may very well be taken out of the final proposal because of push back by Democrats and blue state Republicans alike. An increase in the standard deduction – almost double the current deduction – would benefit low wage earners and taxpayers that don’t itemize deductions on their federal returns.  The proposed changes in personal tax rates in both the House and the Senate are temporary and will expire in 2023 and 2025 respectively.

The proposed reduction in corporate taxes is certainly a – if not the – primary focus of the proposed tax reform.  The GOP is counting on a reduction in corporate income tax rates to increase business investments and bring overseas jobs back home leading to an acceleration in economic growth, more jobs and higher wages.  Let’s just hope, if it passes, that they’re right because if they aren’t it’s projected that the US will pick up another $1 trillion up to a $1.5 trillion in national debt in the next decade!  Another possible problem that is getting attention is our economy is already doing well; an added stimulus might prove to “overheat” our economy and drive us into a recession sooner rather than later. The proposed corporate tax rate is permanent and does not expire in either the House or Senate versions.

Europe’s five largest economies have recently pushed back on both the House and Senate versions of the proposed new tax law. In a recent letter to Treasury Secretary Steve Mnuchin, the finance ministers in France, Germany, Italy, Spain and the UK shared their fears that proposed provisions of the Senate and House bills will give American firms an unfair tax advantage.  They believe that the proposed US overhaul contains protectionist measures that could be in violation of double-taxation treaties and breach world trade rules.   


The Federal Reserve will have a new chairman in February 2018.  Jerome Powell will be replacing Janet Yellen as Chairman of the Federal Reserve. In a relatively unprecedented move President Trump did not ask Ms. Yellen to stay on as chairman for a second term.  Mr. Powell has been on the board of the Federal Reserve since 2012, he was nominated by President Obama.  Mr. Powell is known as a consensus builder and is expected to mostly stay the course that Ms. Yellen has taken.  


Historically speaking, stocks are expensive.  The usual precursors to a sustained bear market are not in place, stocks are high but our economy is not overheated, and inflation remains low.   On the other hand, we haven’t had a “normal” correction in a long time.  A normal correction is a 10% to 20% decline in stock prices.  If you haven’t already done so, I urge you to raise cash in your portfolio if you need to build up cash reserves or anticipate an extraordinary expense in the next year or two.  If you don’t need cash, be prepared to ride out a correction at some time in the coming months or year.

Bonds are important in all but the most aggressive portfolios. I don’t expect great returns, but bonds can help reduce the volatility of your portfolio and provide liquidity when it’s not a good time to sell your stocks. 


As always, stick with the basics.  Remember to keep your goals and needs in mind.  Maintain adequate cash reserves, review both your portfolio and financial picture at least annually or when there is a significant change in your finances or goals. 

If you would like to accelerate deductions into this calendar year, pay both installments of your property taxes and your California estimated taxes by December 31, 2017.  If you have a large mortgage and are worried that you won’t be able to deduct all your mortgage interest next year, pre-pay your January mortgage payment.   If you need to upgrade or change your medical insurance I suggest you do it now as rates may rise significantly next year.

After the fire, we’ve become more aware of the importance of homeowner’s – and renter’s - insurance.  Talk with your agent to be sure your coverage is up to date.  Be sure you have replacement cost with “current building codes”, find out what your benefit is if you are forced to live elsewhere while your home is being rebuilt or repaired.  While you’re at it, make sure you have adequate liability coverage.  As you know, I’m a big believer in an Umbrella policy for excess liability coverage.



We’ve already scheduled our client meetings and WOW event in 2018.  We’ll be sending out a flyer with the dates soon.  We’ve tentatively selected meeting topics but you if have a great idea let us know.

We are always striving to better serve you.  Please don’t hesitate to give us your feedback and suggestions.


This year especially I want to wish every one of you Happy Holidays and a wonderful 2018.  This has been a difficult year for so many.  The fire has touched many of your lives.  Others of you have faced your own personal challenges as well.  I, and all of us in the office, want to wish you the very best going forward and thank you for being such fantastic clients and friends!


Best wishes,



References: Wall Street Journal; LPL Research;;;; US Department of Labor