Here we stand at the end of the end of the first quarter of 2017, and as I write this, the markets look to have booked some decent gains in the first 90 days of the year. Three months ago, everyone was positive we were heading in an inevitable new direction with Trump as president - some were sure it was a terrible direction, others were highly optimistic.
At the end of the first 90 days, there's been very little that's actually changed. There've been trade issues, American manufacturers keeping production here, talk of a new wall (that probably won't look nearly good as that other wall
), and people are freaking out about climate change and wildlife. But that's just the little stuff.
The big things Trump campaigned on - healthcare reform, tax cuts, and the rebuilding of America (bridges, airports, highways) - have so far not had enough support to even garner a vote, much less get approval. Some say this is the great part of American democracy. We have so many checks and balances, that not even one party can agree enough to do anything on their own. And, Mr. Market has noticed, as the so-called Trump rally seems to have run its initial course since right around Valentine's Day. We've seen the markets slowly meander sideways and down over a six-week period.
As for some other investment themes we've talked about, banks & financial stocks and American small- and mid-cap companies have stalled out a little from where they were at the start of the year, as there is a concern about who will really benefit from a Trump White House. Despite Mr. Market questioning which sectors will do well, the typical equities we all think of as growth stocks have continued their northward climb - think Apple (AAPL), Amazon (AMZN), Google (GOOGL) and Facebook (FB). Even Starbucks (SBUX) has begun to show signs of life again for the first time in a while. Maybe they're onto something with those new coffee bars!
Overall earnings for the quarter suggest that average Americans are continuing this no-wage raise recovery. That is, people are working and earning, but they're not getting raises due to the squeeze all companies are feeling from rising costs within the business, whether in HR, compliance or healthcare. This is within an environment of people being smarter and better users of technology with the ubiquity of smartphones, whether they're using them to check Google flights for a good deal, making a purchase through Amazon so they don't have to set foot in a store, or watching movies on Netflix.
Consumer behavior continues to change as people try to make their dollars go further. Longer-term, I wonder what will happen when we have higher interest rates for home, auto, student and personal loans in this economic climate where the majority of consumers are already feeling squeezed. If we are truly a consumer driven economy, this could lead to an economy that needs people to consume more, but where consumers have been priced out of consumption. And that could lead to the next collapse within our financial system.
Our outlook for the year remains the same - I still believe the economy is improving, and at the end of the day, investors will buy stocks in companies that are growing their top line through the sale of goods and services, and that are also actually paying dividends to their investors. At the same time, we favor alternative investments such as real estate and equipment leasing over traditional 10-30 year bonds, whether US government or corporate.
With interest rates rising and short-term bond yields improving a bit, we also now offer an Envestnet Income Model within our Envestnet (investment) account. If you're interested in exploring this option, give our team a call so we can walk you through all the pros, cons, and various options that come with this account.
Over the next six to nine months, we do anticipate that the markets will experience more volatility than we've seen in the first three months, as we get more economic, earnings and Federal-related data as points of reference on how the economy is doing and our overall outlook. But here's how I think of it - market volatility is nothing more than a little indigestion. Sometimes it goes away quickly and you can eat freely again, and sometimes you have to throw up. Yuck. But it always passes.