Broker Check

1st Quarter - 2017

The first quarter of 2017 was without a doubt a good one for stock markets worldwide! The S&P rose 6.07%, the NASDAQ was up 9.82%, the EAFE up 7.39% and the MSCI Emerging Markets up 11.49% for the period.  On the fixed income side, the Barclays Capital Aggregate rose 0.82% in the first quarter.

So, why has the stock market done so well in the first quarter?
Over all, our economy continues to experience slow, tepid growth.  In the first quarter of 2017 US GDP growth slowed to a 0.7% annualized rate and consumer spending weakened.  Still, economists are projecting 2017 GDP to be in the 2% range for the full year.  Inflation is up a bit and is now approximately 2.4%.  The unemployment rate stands at 4.4%, the lowest it’s been since 2007. Businesses have picked up spending on long term projects, in fact, nonresidential fixed investment grew at a 9.4% pace in the first quarter, the biggest jump since 2013.  Europe continues to show signs of economic improvement with rising consumer confidence, increasing business investment and unemployment levels are finally drifting lower.  An added benefit of the increasing strength in the global economy is an increase in global demand for US exports. 

Despite the above mostly positive news, I (I’m not alone) believe that the recent rise in stock prices is due primarily to investors’ optimism and hope.  The Trump Administration has vowed to lower tax rates, relax business regulation, create incentives to bring US overseas business operations back home, renegotiate better and more advantageous trade agreements, and initiate much needed infrastructure projects.  Investors are hoping that the above changes will stimulate our economy and create more and better paying jobs.  First, it’s important to remember that none of the above promises have been fulfilled yet.  Secondly, when – and if – they come to fruition we don’t know if they will have the desired result.  Time will tell.

What to Do?
U.S. stocks are expensive.  As you know, stocks are cyclical in nature, they go up and they go down. I believe at some point in the coming months or year it is likely that we will experience a correction in stock prices.  A “correction” is considered a downturn of 10% or more in value.  Historically speaking, a stock correction is normal and to be expected.

I am a fan of long term investing and don’t believe in market timing, however, there are some things I suggest you consider right now: 

  • If you need cash to build reserves or to fund an upcoming extraordinary expense this is a good time to think about taking some profits and raising cash. 
  • If you are overweight in equities versus cash and fixed income investments this could be a good time to rebalance your portfolio.
  • International stocks have been generally cheaper than US stocks and you may want to add to your international allocation.
  • Active management may be a more advantageous approach to investing right now.  With stocks overvalued “selectivity” and price become a more important variable. 
  • If you are due for a review this a good time to schedule an appointment or a phone call. 
  • If your financial situation or your financial goals have changed please let us know.  You may need to make changes in your portfolio and/or your current financial plan.
  • If you plan to add “new” money to your investment portfolio I suggest you “dollar cost average” in over a period of six months or even longer. *

Most importantly, keep a long-term perspective.  Stick to the basics, be sure that you have adequate cash reserves and the time horizon to hold your investments through a market cycle.  Be patient and maintain realistic expectations.  Don’t put yourself in a position where you are forced to sell into a down market to raise cash. 

What's New?
Our next client meeting is scheduled for Thursday, June 15 from 5:30pm to 7:30pm at the Sonoma Hilton here in Santa Rosa.  We are lucky enough to have two portfolio managers, one from Franklin Templeton and one from Oppenheimer Funds as guest speakers.  They will be sharing their outlook with you regarding global stocks and bonds.  Both companies have excellent research departments and the discussion should be very interesting.  There will be time for Q & A.  We have delicious appetizers, wine, and beverages for you to enjoy.  Hope to see you there.

Our annual “WOW” event is scheduled for Thursday evening, August 3.  You will be receiving an invitation in the coming weeks but please save the date.  We’ve made every effort to “out-do” ourselves this year and have arranged for some outstanding entertainment, as well as, a gourmet dinner and some nice music for your listening pleasure.  Bring a friend!

In closing, I want to thank you for your continued confidence, business and friendship.  I look forward to working with you in the years to come.  I hope that you and yours are enjoying a wonderful spring and “finally” some good old California sunshine!

Best wishes,



* Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities.  An investor should consider their ability to continue purchasing through fluctuating price levels.  Such a plan does not assure a profit and does not protect against loss in declining markets.  

Sources:  Wall Street Journal; LPL Research; Reuters;  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.  No strategy assures a profit or protects against loss.  Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.  All investing involves risk including loss of principal.  No strategy assures success or protects against loss.