The first quarter of 2017 has concluded and so we take stock in all that has happened. Global equity markets continued to display the strength we have experienced since the 2016 US election.
For the year to date period, the S&P 500 was up 6.07%, while the Nasdaq Composite was up 10.13% and the Dow Jones Industrial Average was up 5.19%. International markets were also strong, with the MSCI EAFE Index up 7.39% in the period.
The three main strategies that we manage here were a bit mixed, with the Biondo Focus Strategy up 12.93%, the Biondo Growth Strategy up 8.99% and the Biondo Dividend Strategy up 2.86%. Clearly, growth stocks have outperformed value stocks in the period, as displayed in the above-mentioned returns at both the index level and as our strategies reflect. This see-saw action between growth and value has persisted for some time now, furthering our belief that exposure to both continues to make sense for the majority of investors.
Politics and Markets
Following the election, we anticipated a decoupling from markets and politics. While in some respects this has occurred, politics still appears to be driving the decisions of many investors. While some desire to be more aggressive, others have grown cautious-—and it appears to be largely based on their political outlooks. While we certainly take government policy into consideration, it has been our experience that allowing politics too much influence on investment decisions can be detrimental.
Generally speaking, investors have cheered President Trump’s victory on what has been perceived as a pro-growth agenda. Now in office, the perception becomes reality and the learning curve in politics can be steep. The GOP was dealt a defeat over the Affordable Care Act and the “repeal and replace” agenda. President Trump’s budget proposal also faces political uncertainty in our view. Tax reform policy, which likely packs the biggest economic punch, faces questions in terms of impact and timing. Nevertheless, the President’s early moves suggest a desire to significantly
reorient the federal government, and markets have generally applauded that stance.
As the equity market continues to advance, our caution grows in the very near-term. As it appears to us that markets have priced in a robust tax package, anything perceived to be short of that is likely to have negative impact on markets in our view. Failure of the GOP health care plan makes tax reform more difficult. A major component of the American Health Care Act was a $1 trillion repeal of taxes that were enacted as part of the Affordable Care Act and a corresponding set of cuts to Medicaid. Without that baseline reduction, policymakers will be forced to find other revenue offsets, making tax reform more difficult. While we still believe tax reform is likely and a positive in the longer-term, how it is priced in current markets is a near-term concern.
It appears manufacturing segments of the economy are improving, housing demand is on the rise and consumer spending accelerated. All economic data in recent months has seemed to surprise to the upside, which has helped equity markets during this advance. March consumer confidence soared to its highest level since December 2000, as the Conference Board’s Consumer Confidence Index hit 125.6. We expect rising confidence to boost real consumption levels in the months to come. Inflation appears to be creeping higher—all of which means the Fed is likely to continue to hike rates in future meetings. While investors have been complacent around the past two rate hikes, if the Fed appears to be more aggressive, downside risks exist.
As of this writing, we are approaching the first quarter earnings season. This period typically offers a view for
the overall corporate health and earnings outlook for the remainder of 2017. S&P 500 earnings are expected to rise 9.1% for the first quarter, the best such advance in nearly five years. As we have stated in the past, earnings growth is what drives markets higher in the long-run. With expectations for solid advances for the foreseeable future, we expect markets will continue to be favorable from an earnings perspective.
While risks exist and our near-term outlook has become more cautious, we remain focused on the longer-term. We continue to own what we believe are excellent businesses with capable management teams and solid outlooks for future growth. We continue to fine-tune portfolios to represent a balance between risk and reward and are continuously looking for new ideas to implement into our various strategies.
By now, you have likely received a package from us regarding the transition to a different platform at Fidelity. Our team has gone to great lengths to make this transition as smooth as possible for all involved parties. If you have any questions or would like to discuss any of the information, please feel free to give us a call at your convenience.
We are very excited about the enhancements this new platform will afford us and look forward to sharing our enthusiasm with you.
As always, we appreciate the trust and confidence that you have placed in our firm. Our team stands ready to guide you in all aspects of your financial lives and we look forward to continued success in 2017.
Joseph P. Biondo
Chief Executive Officer
Chief Investment Officer
Sources: Index Returns – Bloomberg; Biondo Returns – IAS; Trump Agenda, Government Reform, Consumer Confidence, Inflation – CNBC; ACA Repeal – NY Times; Manufacturing – CNN Money; Housing – Redfin; Spending – Business News; Earnings – Fox Business.