Market Currents

• Record Highs. Equity markets, driven by strong corporate earnings, favorable political developments from Europe, and a tax proposal to cut corporate and personal rates, have reached fresh new highs.  The tech-heavy NASDAQ index, in particular, saw significant momentum, as levels surpassed the 6,000 mark.

• “Micro” Focus. With S&P 500 earnings season largely complete, the story was of a solid first quarter.  Nearly 80% of companies reported profits above estimates, well above the long-term average.  Overall, Q1 earnings are on pace to expand at double-digits from a year ago – the fastest growth pace since 2011.

• Economists Had Less to Celebrate.  In contrast to strong corporate earnings, the Commerce Department’s first quarter GDP estimate indicated the U.S. economy got off to a slow start during 2017.  Still, the domestic job market remains firm, and wage pressures are growing.  Housing numbers continue to be solid.  Optimism in Europe and China, too, is building, as growth trends continue to improve, and perceived risks are receding.

• A Proposal to Cut Taxes Bigly. President Trump proposed sweeping tax reforms that cuts the corporate tax rate down to 15%, and also provides tax cuts for individuals.  Details are lacking for now, and without a plan to at least offset some of the potential revenue loss, it is unlikely that the proposal will pass through Congress in its current form.

• Elsewhere, Trump stumbles. Trump stirred yet more controversy for his young Presidency with his clumsy firing of FBI Director Comey, and most recently, some loose-lipped intelligence revelations to Russian diplomats (i.e., spies) visiting him in the Oval Office.  Markets mostly shrugged, however.

• French Election. Emmanuel Macron was elected France’s youngest head of state since Napoleon, beating his far-right rival Marine Le Pen in emphatic fashion, with far-reaching consequences for Brexit and Europe.  With the existential threat posed by the French election averted, EU leaders appear reassured and see opportunity to reset project Europe.

• Long-term optimistic, short-term cautious. We remain optimistic on the market over the longer term, but more cautious in the shorter-term.  Conditions are leaning towards overbought, although the strong Q1 earnings print is lending some justification to current valuation.  The landscape continues to be dominated by politics, both domestic and abroad.  We continue to monitor developments, resisting the impulse to react to short-term events and managing for longer-term results.