What's working and not working for equities in the financial markets as we enter the summer months.
Dear Clients, Strategic Alliances, Family and Friends,
We hope this finds you and yours doing well and looking forward to the calendar turning to summer.
I thought we would take a pause from our recent blogs being centered mostly on different wealth management topics and share some thoughts from the front lines about what is on our minds here at Republic regarding the capital markets.
For those of you that have been with us for some time you will no doubt remember the framework from our periodic missive Headwinds and Tailwinds regarding the investment opportunities and risk landscape.
Headwinds For Equities Going Forward
- High stock valuations (i.e., price to book, price to sales, dividend yield, price to earnings multiples, price to earnings adjusted for both inflation and rolling periods of time, enterprise value, etc.). No matter how you slice it most equities are priced for a happy world.
- Seasonal rotation usually described as "sell in May and go away". This means the markets historically tend to go stagnant after May and pick up again late in the year.
Potential Tailwinds For Equities From Here
- Momentum (i.e., technical analysis). In other words, technical indicators suggest a continued bull run.
- Supply vs. demand (i.e., there are roughly half the number of public companies today (4,000+/- vs. the 8,000+/- that were public when I entered the business almost four decades ago).
- Economies around the world are definitely starting to show some actual real growth for the first time in a decade (top line sales revenue growth along with double digit earnings growth).
- Narrowing markets. Are the market advances getting to narrow...with fewer names doing well? You may have heard about the hand full of so called " FANG" stocks, Facebook, Amazon, Apple, Netflix, and Google hitting new highs. Much has been written about this recently and it appears this fear is overblown, but definitely it is continuously monitored by our team.
- Currencies (i.e., the value of the dollar vs. the other world markets).
- The Fed (if and when will the Fed actually go from the accommodative position of forcing interest rates to near zero along with blowing out their balance sheet with QE1, QE2, QE3(QEInfinity?) going all the way back to 2009? In other words, when the biggest financial engineers of all time go from providing a gale force tailwind for financial assets and start to become a possible headwind, will other central bankers follow?).
- The ever present geo-political risks (North Korea, Syria, Russia, and other international issues can always throw a wrench in otherwise functioning markets).
Cautious Optimism for the Rest of 2017
Yes, deep down, we are optimists. But we take our Fiduciary responsibilities to heart all the time (side note, we are not fazed by the financial front page debate over the new fiduciary rules for advisors...we have been fee based, fee- only fiduciaries from the start around here).
How all these market dynamics play out going forward and more importantly what it means for your custom investment portfolio strategy and you will continue to be top of mind for us. These will be high on our agenda when we visit with you at your next Regular Progress Meeting.
As always, we are both grateful and thankful to continue to serve you.
(and the rest of the Republic Wealth team)
IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice. If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.