Market Currents

• Dow 20,000. The year is off to a positive start, with the broader market continuing its post-election momentum.  Nearly all major asset classes finished the month in positive territory.  Even though it is the least representative of the major U.S. stock market indices, the widely-followed Dow Jones Industrial Average finally bested 20,000 in the closing days of January.

• Trump 45. Since his confirmation, President Trump has wasted no time in implementing his priorities, however clumsily.  His first two weeks in office featured continued wrangling with the press, a Supreme Court nomination, and a series of Executive Orders reinstating energy pipeline construction, attacking regulations and tightening immigration.  His most controversial decision has been to block travelers from seven Muslim-majority countries from entering the U.S. for 90 days.  Protestors took to the streets and airports, and Federal courts have stayed the travel ban.  The legal wrangling continues at present.

• The New Trump Economy: Good or Bad?  The Trump administration will continue to dominate headlines and public commentary as policy initiatives are announced.  At present, we are not altering our investment strategies significantly in response to the political news.  We are politically agnostic, but believe that Trump’s policy initiatives, while not without controversy, are largely pro-growth and market-friendly.  However, the Administration’s protectionist ideas, particularly hostility to global free trade, present some concern to us.

• Rising Inflation. The recovering U.S. economy, after a prolonged period in which deflation fears have been dominant, is now showing stirs of rising inflation.  Moderating (i.e., increasing) inflation is likely benign for the economy, up to a point.  Encouragingly, higher inflation is largely coming off the backs of higher wages – which have stagnated for nearly 15 years – as opposed to higher commodities costs, which would be more worrisome.  Rising prices, however, could increase the chances of more hawkish Fed policy in normalizing interest rates.

• Q4 Earnings Season. Nearly 60% of S&P companies have reported Q4 earnings.  The market is on track to register the second straight quarter of year-over-year earnings growth, the first time since Q4 2014.  This earnings inflection is a key piece of a bullish case for equities in 2017.

• (Still) Cautiously Optimistic. We remain cautiously optimistic on the intermediate outlook for the market.  We believe earnings have troughed, setting a stage for higher stock prices supported by stronger profits, although a strong USD might lend some headwinds.  Valuation is slightly elevated at current levels, though not excessively so.  Higher interest rates could pose competition for stocks, but a cautious Federal Reserve and high foreign demand for U.S. debt will likely provide some moderating offset to pressures for higher rates.