-April 20, 2018 Weekly Market Update. The U.S. equity market barely nudged through to its second consecutive weekly gain, with the S&P 500 Index ($SPX) rising +0.26% and a +0.45% year-to-date total return. Strong corporate earnings growth of 18.3% for the first quarter helped alleviate the sharp market jitters; also, so far this has been the highest earnings growth since Q1 2011 (19.5%).  Further, $SPX is reporting a net profit margin of 11.1% for Q1, the highest net profit margin for the index since FactSet began tracking this data in 2008. Thus far, 85 companies in the $SPX have reported results and of these, about 70% have met or exceeded analysts’ sales estimates and 87% have met or exceeded analysts’ earnings per share (EPS) estimates. Despite slightly higher equity prices, there has been a cautious tone to the market over geopolitical headwinds and domestic political uncertainty.  We are hopeful that next week's reported earnings for over 170 companies in the S&P 500 Index will finally establish some positive tailwind based on solid fundamentals. Indeed, company first quarter earnings results for next week include: Verizon, Lockheed Martin, Visa, United Parcel Services, Starbucks, ExxonMobil, Alphabet (parent company of Google), Facebook, Amazon, Microsoft, Intel, among others.

-April 13, 2018 Weekly Market Update. The U.S. equity markets recovered some ground this week with the S&P 500, Dow Jones & Nasdaq returning +2.04%, +1.80% and +2.77%, respectively, on positive trade statements by China, Facebook CEO Zuckerberg’s well-handled congressional testimony and positive corporate earnings developments. Case in point, China’s Xi Jinping showed promising strides in trade while 70% of S&P 500 ($SPX) companies have beaten EPS estimates to date for first quarter - equal to the 5-year average. Additionally, 73% of $SPX companies have beaten sales estimates to date for Q1, well above the 5-year average (57%). [Earnings source: Factset]

-In yesterday's Wall Street Journal, "Advisers at Leading Discount Brokers Win Bonuses to Push Higher-Priced Products," conflicts of interest for discount broker advisors were highlighted, such as at Fidelity, TD Waterhouse, etc.  According to the article,  the discount brokerage in-house advisers often tell clients they don’t get paid on commission and therefore don’t have conflicts of interest. Yet in reality, however, "advisers at some of the biggest brokerage discount brokerage firms make more money if they steer client's toward more-expensive products."  We, as independent RIAs, can bridge this conflict since we work in a conflict free environment given we are independent of the discount broker in which we choose have as our custodian. Furthermore, we purposely have chosen to not be licensed to accept any form of commission.  

-Our Community Mudslide Devastation, A Personal Note: First, while we have experienced technical and logistical pitfalls from the tragic mudslide & debris events surrounding our community, our health has been unaffected.  We also have had workarounds in place to mitigate the cable/wireless/power/telephone disruptions and our system continuity measures have provided for ongoing monitoring and adjustments of client portfolios.  However, at times, we had no access to the Santa Barbara office due to the Highway 101 damage and this has necessitated client account maintenance to be handled remotely.  We are heartbroken over the horrifying catastrophic destruction and great loss of life in Montecito.  Our prayers and condolences continue to go out to those in our community that have experienced hardship and loss.     
 
-The S&P 500 Index has gone 382 days without a 5% pullback, putting it just over two weeks away from the longest streak on record, dating back to 1929. In 2018, our client portfolios will have increased weightings overseas where valuations are over 20% cheaper, growth is intact, central banks remain accommodating and earnings are accelerating. In fact, just a mere 3% of overseas country economies are expected to encounter any form of contraction, which is the fewest foreign countries in recession on record.  

-2018 STOCK MARKET FORECAST - S&P 500 EQUITY INDEX PREDICTION: There has been a lot of talk about how the equity markets have been induced by artificial liquidity injections by the Federal Reserve. Insofar as we believe in “don’t fight the Fed,” at the same time it is also the people’s money and institutional money that has been driving this rally, along with benign inflation, relatively low interest rates  and strong corporate profit trends. Based on about a dozen 2018 stock market predictions by Wall Street’s strategists the average S&P 500 target is +7.8% return, or a +209 gain to 2,883. Our internal forecasts are also (at least) high single digit returns, however, the forecasts by the top U.S. investment houses came with wide disparity on where stocks are headed. The most bullish year-end price target for the S&P 500 is 3,100, or nearly 16% higher than its current level of 2,674. The least optimistic prediction is 2,750, which represents a gain of about 2.8%.  Keep in mind that company stock buybacks are expected to add about +2% to total returns alone this year.  Also, following years like 2017 marked by above-average new highs and below-average volatility, volatility has historically picked up in subsequent years to rival the normal average of 50 big-movement days.  Wall Street Strategist are also looking for double-digit earnings growth via high profit margins for the S&P 500 in 2018. For example, as of December 22, analysts estimate the earnings growth rate for the S&P 500 for calendar year 2018 to be +11.8%.

-November 10, 2017 Weekly Market Roundup. The equity markets experienced their first round of losses in eight weeks with the S&P 500 -0.14%, Dow Jones -0.35% and the Nasdaq -0.20%. Investment flows moved into defensive positions of consumer staples stocks, which experienced positive returns for the week. Energy stocks were also up on news of Saudi Arabian officials and members of the royal family arrests, spurring an uptick in energy prices. Now that third quarter earnings had largely played out, focus moved to the disappointing progress of tax reform driven by new delays of its passing with congressional divisiveness on many of the items proposed.    

-“While the S&P 500 climbed 2.7 percent since September, the gap between the best and worst performing industry widened to 19 percentage points. It’s the first time since the 2008 financial crisis that such a small move in the index was accompanied by such big industry divergence. Surface calm masked wide divergences in returns during a quarter in which investors have bought companies with the best earnings potential while staying away from those that may be hurt by competition or new policies  Also, stocks with the weakest balance sheets fell the most relative to the market since June 2016 as a provision in the tax bill capping the amount of deductible interest expenses at 30 percent of a company’s income. They (Investors also) dumped homebuilders, sending a S&P index tracking the group down almost 3 percent, as the mortgage interest deduction for newly purchased homes is set at $500,000.” (Bloomberg, 11/5/17)

-November 3, 2017 Weekly Market Roundup. The U.S. equity market posted modest gains for the week, which extended their weekly winning streak to eight - S&P 500 returning +0.29, the Dow Jones +0.45% and the Nasdaq finishing +0.94%.  So far for the third quarter earnings season, 74% of the S&P 500 companies have beaten EPS estimates for Q3 to date, above the 5-year average of 69%. Jay Powell was appointed as the new Chair of the Federal Reserve and the announcement came with little reaction in the capital markets given Mr. Powell has never voted against Janet Yellen in the past and has served on the Fed Board of Governors since 2012.  Also, the Fed kept rates unchanged this month but gave a strong indication of a December hike. October's ISM Non-Manufacturing Survey for October was surprisingly strong at 60.1, the highest reading seen since August 2005. The Unemployment Rate fell to a new 17-year low at 4.0% (when the FDTR stood at 6.50%) while the broader U5 measure declined to 5.0% level, the lowest seen since March 2001.

-October 27, 2017 Weekly Market Roundup. The U.S. equity market posted moderate gains for the week (S&P 500 +0.23%) on relatively healthy corporate earnings results from some of the world’s largest companies. Tech was the clear market leader as Microsoft, Amazon, and Alphabet posted strong quarterly results. The S&P 500’s winning streak has now hit seven weeks of gains, which is the longest streak in three years. With over half of the S&P 500 company stocks having reported earnings for the third quarter, 76% of these companies are reporting actual EPS above estimates compared to the 5-year average. In aggregate, companies are reporting earnings that are 4.7% above the estimates, which is also above the 5-year average (Source: FactSet). During the upcoming week, 135 S&P 500 companies are scheduled to report results for the third quarter. The forward 12-month P/E ratio is 17.9, which is above the 5-year average and the 10-year average.

-October 20, 2017 Weekly Market Roundup.  Equities continued to rally for the week on upbeat earnings and news that the Senate approved the tax relief bill as part of a 2018 budget resolution.  The S&P 500 moved +0.88%, the Nasdaq eked out +0.35% and the Dow Jones jumped +2.04% for the week. For the roughly 20% of S&P 500 stocks that have reported third quarter earnings, 76% of the companies beat consensus earnings estimate. Moreover, 78% of S&P 500 companies have beaten sales estimates for Q3 to date with 10 of 11 sectors reporting revenue growth for Q3 - above the 5-year average of 55%.

-The relatively accommodative (dovish) monetary policy environment, improved global growth (in particular in the U.S.) & tepid inflation were strong contributing drivers for the capital markets so far for the year.  However, the overhanging concern for potential volatility is sustainability of quality earnings growth and the fulfillment of tax reform expectation of lower corporate taxes.  We believe earnings will still deliver for the third quarter (so far 81% of companies beating estimates), but a good number of companies will be impacted by one-time hurricane events. We also believe some form of tax reform will take hold, but not until the first quarter of 2018. At this stage in the market rally and with equity indices hitting new highs it is important to have a historical perspective. "Since 1928, there have been 29 times (prior to 2017) that the S&P 500 made a 12-month high in the month of September; in 24 of those cases, the market continued to rise during the fourth quarter. Overall, for all periods (including the five down quarters) following a September high, the market gained +3.7% on average).  Moreover, when rising bond prices accompanied the new September high in stocks, the average S&P 500 fourth quarter gain was 5.4%.” (Source: Leuthold Group)

-October 13, 2017 Weekly Market Roundup. We're seeing a continuation of the strength in the market combined with low volatility as the S&P 500 returning +0.17%, the Nasdaq finishing +0.25% and the Dow Jones rising +0.43% for the week. Of the public companies that have reported 3Q17 earnings, 81% of the stocks reported better-than-expected results - most of these companies fall within the financial sector. Looking at the 3-month moving average, the U.S. economy is trending at the lowest number of unemployed people for each job opening on record, at 1.15. Finance ministers & central bankers from the International Monetary Fund and the World Bank had meetings this past week and the capital markets received no unsettling surprises from the gathering of top global economic officials.

-September 8, 2017 Weekly Market Roundup. Equity markets exhibited weakness during the truncated trading week (holiday) with the S&P 500 slipping -0.58%, the Nasdaq dropping -1.17% and the Dow Jones declining -0.82%. The capital markets have become rattled by hurricanes, legislative surprises and aggravated tensions with North Korea.  Another broader concern is the economic impact of several regions in the US being devastated by hurricanes; already, initial claims for unemployment insurance, a leading indicator of economic weakness, increased +53,000 to 298,000 for the week ending September 2, 2017.   

-September 1, 2017 Weekly Market Roundup. Equity markets bounced back for the week on several economic upside developments including 2Q GDP revised upward to 3.0% growth, wholesale inventories +0.4%, August employment change +237k (vs. +180k est), personal income +0.4% (vs. 0.3% est) and ISM manufacturing (58.8 vs 56.8 est).  Further, the capital markets positively responded to Trump’s tax reform push highlighting simplified tax codes, lower taxes and repatriating offshore corporate cash hoards.  For the week, the S&P 500 gained +1.43%, the Dow Jones +0.88% and the Nasdaq ended +2.71%.
 
-If history is any guide, September might be a tough market for stocks; it is historically the worst month for equities and the only one with statistically significant negative returns. Stocks have already receded -3% this summer and in our opinion, a bit more correction and consolidation is due.

-Wall Street firms are warning that there are signals indicating the capital markets are overheating, including the decay of long-standing correlations between stocks, bonds and commodities - as well as investors ignoring valuation fundamentals and economic trends. According to firms like HSBC Holdings, Citigroup & Morgan Stanley the global markets are in the last stage of their rallies and there is consensus building that stock and credit markets are at risk of a painful drop. “Equities have become less correlated with FX, FX has become less correlated with rates, and everything has become less sensitive to oil,” according to Andrew Sheets, Morgan Stanley’s chief cross-asset strategist.  Wall Street research has also noted that for the first time since the mid-2000s, stocks that outperformed analysts’ earnings and sales estimates across 11 sectors received zero reward from investors. Moreover, Citigroup analysts contend that the markets are on the cusp of entering a late-cycle peak before a recession that pushes stocks and bonds into a bear market.  HOWEVER, IT IS OUR VIEW THAT WE ARE IN A LATE STAGE CYCLE WITHIN A SECULAR BULL MARKET THAT IS DUE FOR ONLY A CORRECTION, WHICH ARE “NORMAL” PERIODIC PULLBACKS OF 10% (AN OCCURANCE FREQUENCY OF ABOUT EVERY 16-18 MONTHS).  WE ARE NOT CALLING FOR A BEAR MARKET!

-August 17, 2017 Weekly Market Roundup. Volatility spiked again and all U.S. equity indexes took it on the chin once again for the week with the S&P 500 -0.55%, Dow Jones -0.77% and Nasdaq -0.64%. The fear index [CBOE Volatility Index, aka VIX] also surged by more than 30% on Thursday as U.S. stocks suffered their worst day in three months. Trading volumes began soaring after Standard & Poor's downgraded the U.S. credit rating and disappointing earnings from Wal-Mart and Cisco Systems. Moreover, the market was also rattled by a gloomy Morgan Stanley report that renewed fears about a slowing global economic recovery; the bank warned that the U.S. and Europe were "hovering dangerously close" to a recession in the next 6-12 months. Finally, the Barcelona terrorist event - a despicable and ghastly act - further unsettled global capital markets.
 
-August 11, 2017 Weekly Market Roundup. The U.S. Equity Market posted its second worst weekly loss for the year as markets declined on escalating tensions between the U.S. and N. Korea. The S&P 500 lost -1.37% and the Dow Jones returned -1.50% and the breadth was a large swath that included losses in all sectors. For example, the fear index which is often gauged by the CBOE Volatility Index (VIX), which had been at near historical lows, spiked 55% for the week.  However, defensive sectors like consumer staples and utilities were essentially flat on the negative side. With respect to bonds, corporates also  posted losses whereas flight to safety toward treasuries resulted in positive moves for U.S. government bonds. That said, earnings seasons continues to wrap-up on the positive side:  90%+ of companies in the S&P 500 have reported earnings with 70% meeting or exceeded analysts’ sales estimates while 82% have met or exceeded analysts’ earnings estimates. 

-Market volatility has been abnormally low for months (VIX only at 10.5 vs. average of about 14.4) and it is important to be cognizant of historical trends. For example, VIX or volatility often spikes during the August-to-October period. For the last 20 years, August has been the worst month for the Dow Jones & S&P 500. The stock market hasn’t had a downward correction since February 2016, where it sold off 11%. Periodical market corrections typically occur about every 16-18 months, with technical 10% consolidation declines.  It is interesting that we also just to happen to be entering that 16-18 month sweet spot within a calendar period for some form of S&P 500 market retrenchment. It is equally helpful to be mindful that there are a number of technical corrections during secular bull markets, and this is considered a heathy pattern.  Moreover, bear markets are rare events without being preceded by early recessionary pressures.  Indeed, about 75% of company stocks in the S&P 500 have exceed sales and earnings estimates in 2Q17, while the S&P 500 earnings racked +10.1% growth in the most recent quarter.  On a macro economic front, unemployment hit a 16-year low and 2Q GDP is at a +2.6% pace. 

-August 4, 2017 Weekly Market Roundup. The more diverse sector indexes like the S&P 500 and Dow Jones both were up for the week at +0.23% and +1.22% respectively, while the tech oriented Nasdaq index finished down again, -0.36%.  Of the 420 companies in the S&P 500 that have reported earnings to date for Q2 2017 the year-over-year results have been up +10.1%. Moreover, 72.9% of the reported earnings have been above analyst expectations. Additional positive economic drivers also kicked-in for the week as the economy added 209,000 jobs in July, sharply higher than the expected 180,000.  Unemployment has now hit a 16-year low of 4.3%. 

-June 18, 2017 Weekly Market Roundup. The U.S. Equity Market finished mixed for the week with the S&P 500 holding its ground at +0.1% while the Nasdaq continued its slide with -0.92% loss.  Driving most of the market's action was the Fed’s +0.25% rate increase and its comments, along with several other important economic data reports. The Federal Reserve laid out its plans to reduce the size of its $4.5 trillion balance sheet.

-June 9, 2017 Weekly Market Roundup.  The equity indexes closed mixed for the week with the S&P 500 –0.27%, the Dow Jones 30 +0.33% and the Nasdaq -1.55%. However, Wall Street's tech darlings took it the shorts on Friday with the FAANGs having sharp losses: Facebook (FB) -3.3%, Amazon (AMZN) -3.2%, Apple (AAPL) -3.9%, Netflix (NFLX) -4.7% and Google (GOOG) -3.4%.  These five stocks have accounted for a remarkable two-fifths (or 40%) of the S&P 500’s market gain this year.  Much of the tech sell-off was driven by jitters over rumors that Apple’s iPhones may have reduced speeds due to modem supply constraints, along with Goldman Sach’s research piece on the tech stock leaders called the FAAMG (includes Microsoft); the piece highlighted how the FAAMGs are behind in profitability relative to the overall tech sector and how these top five names are reminiscent of the 2000 tech bubble.  On the global front, the World Bank released their forecast that the global economy is expected to expand by 2.7% in 2017 and 2.9% in 2018 with anticipated improvement of manufacturing, trade and consumer data.          

-June 2, 2017 Weekly Market Roundup. The major U.S. indices advanced to new record highs with the S&P 500 closing the week up +1.0%, the Dow 30 +0.69% and the Nasdaq +1.54%.  The continued positive market momentum even overcame a lackluster jobs report of weaker than expected non-farm payrolls,  138,000 reported vs  185,000 expected.  Technology stocks (particularly Telecom) led gainers, while financials and energy were the sector lagers for the week.

-April 28, 2017 Weekly Market Roundup. The S&P 500 finished with a gain of 1.5%. Some good first-quarter earnings results also boosted the indexes and helped the market carry momentum, boosted by positive reaction to earnings reports from Amazon (AMZN) & Alphabet (GOOGL). The VIX (CBOE Volatility Index), often called the “fear gauge,” dropped 26% after the French vote, the largest one-day decline since 2011. Investment-grade corporate bonds benefited from positive investor sentiment at the beginning of the week in part due to the French election results. The upbeat sentiment also led to an increase in rate-hike expectations. The fed funds futures market spiked toward an indication of a June FOMC meeting rate-hike announcement with an implied probability of 66.6%, up from last week's 48.5%.


-April 21, 2017 Weekly Market Roundup. Equity markets rallied this week as strong earnings results helped elevate investor confidence. The S&P 500 ended the week up +0.87% and the Dow Jones finished up +0.57%. Thus far, 19% of companies in the S&P 500® Index have reported earnings results; of these, 65% have exceeded analysts’ sales estimates, while 76% have exceeded analysts’ earnings per share (EPS) estimates. Treasury yields remain near 2017 lows as U.S. government debt has continued to rally over geopolitical concerns.


-April 13, 2017 Weekly Market Roundup. Equities retreated for the week as “saber rattling” and geopolitical concerns weighed on investors.  Defensive areas of the market, including large cap companies, outperformed while sectors that reflect economic conditions, such as Financials, Materials, and Industrials, lagged. Demand for “safe haven” investments rose, including gold which rose to its highest price since the presidential election, a 14% rally from its December low.  Meanwhile, the CBOE Volatility Index jumped about 30% this week on overall greater investor trepidation, its highest point since last November.


-We remain cautious on current client portfolio positions given the escalation of military activities. For example, the U.S. is playing with fire with soon-to-be military exercises off the coast of North Korea, when Kim Jung-on (who is crazy) promises to unleash a "nuclear-tipped missile." We are equally concerned that Syria, Russia, Iran and Hezbollah have aligned against western forces on the Syrian matter.  Thus, as to investing right now, we are also not putting more cash to work. In fact, if conflict events escalate & turn south, then we will be pulling some “risk-on” assets into treasuries. However, that would only be a temporary asset allocation shift in event military conflict ensures, as markets typically recover about two weeks after. “In 14 shocks dating (back) to the attack on Pearl Harbor in December 1941, the median one-day decline has been 2.4%. The shocks, which also include the September 11th terror attacks and the 1962 Cuban missile crisis, lasted eight days, with total losses of 7.4%…The market recouped its losses 14 days later.” Chris Isidore, “Impact of War On Stocks and Oil,” CNN Money, 9/3/2013

-According to the index firm MSCI, the performance of high yielding equities when the Fed raised rates offer protection. It turns out that over the 88 years through July 2015, when 10-year rates have been low (less than 3%), high-yielding stocks have outperformed the market by an annualized 2.4% as the Fed tightened.

-February 17, 2017 Weekly Market Roundup. The U.S. Equity Markets surged to new record highs this week on increased investor optimism surrounding the Trump administration’s tax reform, improving economic data, and strong corporate earnings results. The generally positive fourth quarter earnings have provided a greater sense of optimism of improving economic growth in 2017.  Day-to-day, the markets tend to respond to the latest pronouncements from Washington DC. In turn, municipals bonds are at the cheapest levels relative to taxable bonds since at least December, with ratios to taxable Treasury bonds making munies look more attractive. Treasuries absorbed stronger economic data and a more hawkish Yellen at the Humphrey-Hawkins testimony to finish the week 10-12 bps lower in yield. March rate hike probabilities ended the week at 40%.

-Lost decade for international equities.  Since international markets peaked in 2007 right before a global financial meltdown, Morningstar data show that developed international stocks – as measured by the MSCI EAFE index – had lost a cumulative -6% through last week. At the same time, the MSCI Emerging Markets index had slid -16.6%.

-January 13th, 2017 Weekly Market Roundup. Markets shifted between modest gains and losses this week to close roughly unchanged. The upcoming fourth quarter corporate earnings reports should provide indications of near-term market direction, and more importantly, insight from management teams’ outlooks for the year.  For example, a few large financial firms have reported fourth quarter results with favorable revenue & profit trends, including very positive remarks on the business prospects moving forward. Ahead of the reporting season, analysts are projecting the companies within the S&P 500  index to have revenue increases of +4.6%, along with improved earnings (+3.2%). The World Bank said this week it expects the world economy to expand +2.7% this year, on the heels of stabilizing and slightly rising commodity prices and fiscal stimulus in the US.

-The Conference Board’s Consumer Confidence Index climbed to 113.7 (1985=100) - the highest level since August 2001. It moved +4.3 points higher than November’s level, while beating the prior forecast of 109 (according to Bloomberg reports).  Further, the Markets: Proportion of consumers expecting higher share prices in 2017 increased to 44.7% in December, the largest since January 2004.

-January 6th, 2017 Weekly Market Roundup. Equity markets welcomed the New Year with gains in all sectors as all major indices advanced. While the Dow fell just short of reaching 20,000, the S&P 500 closed at an all-time high on Friday. Driving much the rally has been the incoming Trump administration’s priorities including tax, health care, and regulatory reform as well as infrastructure spending. Also, helping equities march higher was the December jobs report, which showed that the economy added 156,000 jobs in December and average hourly earnings grew 2.9% over the past year.

Montecito Capital Management Group's 2017 Market Outlook & Forecast:
As we enter 2017 we expect the current economic rebound to continue suggesting GDP growth will likely move toward the 2.7%-3.0% level by the end of the year based on less monetary stimulus, more fiscal stimulus, a reduction in the corporate tax rate and deregulation.

The S&P 500 equity index is currently trading at about a forward 2017 price-earnings ratio of 17x which is a rich value, but not as lofty as the 2000-2001 tech bubble (nor as cheap as 2009). Wall Street currently forecasts a +5.5% gain for the S&P 500 in 2017 (average of 15 firms) and sees the index reaching 2,363 by year end, from its 12/31/16 close of 2,239. We believe the market has the potential for +7.5% in 2017 given more indirect investment currents where lackluster bond downward pricing will likely engender an extended redistribution from bonds to equities. We also believe the S&P 500 returns will be front loaded, where the largest percentage of gains will be in the first half of 2017.

The incoming administration has promised a much more business-friendly atmosphere including lower taxes and less regulation. Trump has control over both houses of Congress. Also, in the years when that has occurred, equiteies have returned an average of +14% per annum. Having Congressional & Executive Branch control is historically rare for a Republican administration. Trump wants to cut the corporate tax rate, and congress is in agreement, making it likely to happen. According to Citi, if the rate was cut to 20%, it would add $12 to their top-down estimate of $130 for 2017 S&P 500 earnings per share (or about +10%,). 

2016 Returns By Sector, Shows Clear Sector Winners, Losers & Benchwarmers:

-December 30th, 2016 Weekly Market Roundup. Markets declined in the final week of the year on light trading volume over the holiday.  Indeed, the Dow Jones Industrial Average recorded its first weekly loss since the presidential election. Nevertheless, the Trump election rally has propelled the major indices to impressive gains in 2016. For the year, the S&P 500® Index rose +9.5% and the NASDAQ advanced +7.5%.  However, 2016 did not lift all boats, with typical safe haven equity sectors down, with healthcare finishing down by over -4% and consumer staples ending essentially flat for the year. Meanwhile, U.S. government bonds declined for the second consecutive year.

-December 23rd, 2016 Weekly Market Roundup.  Stock market took a holiday break this week. Volatility dipped below 11 percent on Wednesday, the lowest the VIX index has hit since August 2015, and all three major indexes moved by 0.3 percent or less. Global equities dipped modestly this week while US indices barely budged.

-The U.S. Federal Reserve raised interest rates on Wednesday the 14th by a quarter point, or +0.25%. The Federal Open Market Committee raised its target range from 0.25 percent to 0.50 percent to a range of 0.50 percent to 0.75 percent. The overnight funds rate currently sits at 0.41 percent.  Committee members lifted their expectations for GDP growth from 1.80 percent in 2016 to 1.90 percent, and 2.1 percent in 2017 against the previous estimate of 2.0 percent.  The Fed continued to describe that pace as "gradual," keeping policy still slightly loose and supporting some further improvement in the job market. It sees unemployment falling to 4.5 percent next year and remaining at that level, which is considered to be close to full employment.

-December 9th, 2016 Weekly Market Roundup. The recent market rally resumed with stocks recording their best weekly performance since the presidential election.  On Friday, the Dow Jones Industrial Average, S&P 500® Index, NASDAQ, and Russell 2000® all reached new record highs. In contrast, safe haven dividend income areas that have outperformed in recent years - including Utilities and Food & Beverage, and Household Products stocks - have fallen since the election.  Likewise, bonds continue to drop in value as investors anticipate an environment with higher growth and higher inflation; long-dated fixed income investments are less attractive under these conditions.  In this environment, our Model Portfolio and Growth Portfolios are faring well, but the retiree income portfolio remains lackluster.  Looking under the hood in equity sectors show a different picture than what is discussed by the media. For example, the health care sector is down -3.7% ytd, consumer staples sector is only up 2.0% ytd, large growth stocks are only up 3.0% ytd, while REITs have lost about -3% these past three months. Moreover, the long-term corporate bond is down -7.3% over the past three months, US Core Corporate Bond has lost -3.2% in the past 13 weeks; government bonds are down -3.8%.  The takeaway is we have short-term rotations going on with sharp differences between winning and losing sectors and asset classes.  For example, financials are up over 22% this year, with basic materials and energy also both up over 20% this year – these are being driven by the perception that Trump will pour a trillion dollars in America’s infrastructure, including a wall. However, all this spending needs approval and Trump has shown that he sometimes exaggerates on what he wants to do versus on what he can do – such as getting a trillion dollars from congress. Hence, the bifurcation in sector performance may not have legs and sector rotational trends may recalibrate and normalize in the intermediate-term. Again, big sector winners are offsetting the anemic returns in what many consider to be the more stable equity sectors.

-December 2nd, 2016 Weekly Market Roundup. Equity markets retreated this week as the post-election rally stalled, with the S&P 500 finishing down -1.0% while the Russell 2000 lost -2.5%. The Barclays U.S. Aggregate Bond Index lost -2.4% in November to mark its worst drop in 10 years due to the strengthening U.S. economy (expected Fed increase), rising oil prices and the prospect of increased government spending under the Trump administration (more debt). The upcoming Italian election (called the referendum) could make it a tough trading period for the US markets on Monday (Sunday for EU). If the referendum is lost, it could prove a catastrophe for Italian bank shares and perhaps bank shares all across Europe.
 

-October 28th, 2016 Weekly Market Roundup. Stock indexes were mixed on the week as the Dow Jones Industrial Average increased marginally, while the S&P 500 fell as the upcoming U.S. elections weighed on sentiment despite generally better-than-expected corporate earnings and economic data/ The initial estimate of third quarter GDP (2.9%), the strongest pace in two years, exceeded both the 2.5% forecast and the second quarter’s somewhat anemic 1.4% growth rate. Of the 293 companies in the S&P 500® Index that have reported results, 73% have exceeded analysts’ earnings per share estimates and 57% have exceeded analysts’ sales estimates.  For the quarter, overall corporate sales are now expected to grow 2.7% while earnings are expected to grow 1.6%.

-October 21st, 2016 Weekly Market Roundup. The S&P 500 rose +0.4% this week while the Dow Jones Industrial Average finished little changed after declining -0.1%; the Nasdaq Composite gained +0.8%.  Sixty-eight of the 82 companies in the S&P 500 reporting earnings posted better than expected profits for the quarter. However, portfolio managers are hoarding cash at levels not seen since 2001, indicating that in the event professionally managed money have higher conviction, then there remains substantial sideline cash to move the markets on upward. Clearly, investors are sitting on cash for news from the Federal Reserve and the U.S. presidential election. Also, for the first time in three years, trading volume in October is on track to fall below average daily volume for the year.  Federal Funds futures, used by traders to indicate the odds of a central-bank policy change, suggest a 70% chance of a December Fed rate hike. 

-October 14th, 2016 Weekly Market Roundup. In the U.S., the S&P 500 Index lost about 1.0% for the week, its second consecutive one-week decline. European equities, meanwhile, eked out a 0.1% gain (in local currency terms), after falling to a two-month low on October 13. U.S. equity markets were largely calm with the exception of Tuesday, when the Dow dropped 200 points. For the sixth quarter in a row, compntanies in the S&P 500 are expected to post lower profits than they did a year ago, according to FactSet.

-With correlations between mainstream asset classes increasing this year, more diversity is required. Stocks, bonds, oil, and gold are all set for simultaneous gains this year for the first time since 2010.  What is concerning is if these upward correlations would be matched with equal declines among this group should the market correct downward.  This is one of many reasons why our client portfolios require greater asset diversity.  For example, alternative assets are a portfolio diversifier because they don’t have a high correlation with stocks or bonds and fit somewhere between the two in terms of risk profile. Another consideration is to evaluate the increased portfolio contribution of alternative assets when traditional assets like stocks and bonds are trading at lofty valuations. 

-October 7th, 2016. Markets declined modestly for the week despite stronger than expected vehicle sales and manufacturing data. Third quarter earnings season begins next week with Alcoa, CSX, Delta Air Lines, and JPMorgan Chase scheduled to report.  For companies in the S&P 500® Index, analysts estimate a 2.1% earnings decline, the sixth consecutive decrease.

-Since the presidential election can still throw a curve a ball and with both the stock and bond market valuations trading at above average levels, we strongly believe that investors should stay diversified across a variety of asset classes. Indeed, Mr. Market can also be disrupted by the Fed, which is contemplating a rate hike, while the impact of Brexit still looms (Deutsche Bank is just one of the many concerns).

-The S&P 500 index has gained an average of nearly 4% during the fourth quarter since 1945. Even more comforting, the S&P 500 has increased in price more than 70% of the time. Source: CBSNews.com

-It is unusual that the past two months, August and September, produced identical returns in the S&P 500 of -0.12% decline with both months reflecting a lack of investment conviction. For example, the month of August contained many low volume and low volatility sessions, while September was generally a much more volatile month with big intra-day swings in the middle of the month that ultimately made no advancement in returns.
 
-Since 1933, during the month prior to the election, the S&P 500 Index gained an average of 1.7% when the incumbent party won an election. When the opposition party won, stocks declined by 4.4%.