Market Weather Report: Spring 2017

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Apr 4, 2017 3:46:12 PM

and tagged Commentary

Leave a comment

marketAs I sit here looking out the window, wondering if my flight this afternoon will be able to take off, I’m reminded of the old proverb “April showers bring May flowers.” With rain coming down in buckets and expected to continue all day, we have no shortage of showers here in Boston. You could say the same for the U.S. economy and financial markets.

April showers for the economy and markets

Although it capped a great first quarter, March was a slow month for U.S. markets, and April has been worse. Rainstorms include political risk, which came back in a big way with the collapse of the health care deal. The Trump administration and Republican Congress were widely expected to move the ball forward on domestic policy, cutting taxes and regulations and basically making the economy more efficient. After they failed their first test, many are questioning whether the other promises—principally, tax reform—will play out. Markets appear to be holding out hope, remaining close to all-time highs, but the positive feeling may be starting to ebb.

The economy has been raining on markets as well. The hard data (i.e., what is actually happening) continues to trail the sentiment data, which has increased dramatically. So far, when all’s said and done, much more is being said than done by both businesses and consumers. The slow growth in consumer spending is a prime example. Another worry is that the first quarter might show a substantial slowdown, which could hurt confidence as well. Concerns are rising that this could be another false alarm for a faster recovery.

May flowers ahead?

Will the April showers bring better news in May? I suspect it’s quite possible.

Political news almost has to get better. In the political realm, a major failure early on is pretty typical for new administrations, as we have seen with the Obama, Bush, and Clinton presidencies. Administrations come in with great intentions and not a lot of experience—and crash. They then take a step back, learn from their mistakes, and move on. That process is now under way, and it would be premature to write off the next two years based on one failure. Things almost have to get better—which would be good for confidence, the economy, and the markets.

Economy poised for further growth. In terms of the economy, the first quarter has been weak for the past several years (probably due to measurement reasons), followed by greater strength later in the year. In fact, though some hard data lagged in the first quarter of 2017, other indicators—employment, for examplehave done substantially better than expected and suggest the recovery is likely to keep accelerating. Another significant difference this year is that the Fed is finally confident enough to raise rates, a big endorsement for the economy. Overall, though we may see a bit of a slowdown, the fundamentals remain positive, and subsequent quarters should reflect continued improvement.

Earnings growth could boost market. From a market perspective, there’s also reason for optimism. Earnings are expected to grow for the third quarter in a row, at the fastest rate since the crisis. Market valuations also typically increase with rising confidence. Both of these factors should support the market and may even drive it higher.

All in all, though April showers are certain and May flowers are not, there’s a pretty good chance we'll see the latter sprouting up soon. Rain is usual this time of year, both in Boston and in the economy and markets. Carry an umbrella, stay dry, and wait. Spring is coming.

  Subscribe to the Independent Market Observer -

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®