Ignore the Distractions
The steady diet of headlines pouring out of the Trump administration has been unsettling for most Americans, regardless of where they sit on the political spectrum.
We know equity markets loathe heightened uncertainty. What is happening in Washington is generating an enormous amount of political uncertainty. Yes, the word “impeachment” has even been bandied about in conventional circles. It was responsible for a one-day sell-off last month that cost the Dow 373 points (St. Louis Federal Reserve).
Blame the knee-jerk reaction on allegations President Trump asked then FBI Director James Comey to end an investigation of former National Security Advisor Michael Flynn. There hadn’t been much downside action in the major indexes recently, so talk of impeachment jarred the short-term crowd.
But, political as well as international uncertainty has yet to generate economic uncertainty. Hence, and this is important, we have seen little downside in stocks. It really is about the economy.
Given the comparisons to Watergate, let’s take a high-level look at what was happening economically in the early 1970s and compare it to today.
Table 1: Then vs. Now
1973-74 | 2017 |
Inflation rose to double-digit levels, peaking at over 12% | Inflation remains low |
Interest rates were spiking higher; prime loan rate hit 12% | Interest rates remain low |
OPEC oil embargo roils economy, oil prices rise four-fold | A glut of oil exists today and prices are well below levels of recent years |
The unemployment rate jumped as the economy fell into a steep recession | Employment is rising, the unemployment rate is at a cyclical low, and the economy is expanding |
Source: St. Louis Federal Reserve, U.S. State Dept.
As Table 1 illustrates, the fundamentals are radically different today.
Beyond the brief synopsis I provided above, I’ll stay out of the political weeds and let you form your own opinions. Stepping briefly into the political arena feels like I’ve stepped into a minefield! But I felt it was important to provide some context in relation to the markets.
My job is to be your financial advisor and financial confidant. That is where I focus my energy. I’d be happy to entertain any questions you may have about your portfolio, your financial plan, and how I believe various events of the day may impact your investments.
But let’s stick to your financial roadmap.
Table 2: Key Index Returns
| MTD % | YTD % | 3-year* % |
Dow Jones Industrial Average | +0.3 | +6.3 | +7.9 |
NASDAQ Composite | +2.5 | +15.1 | +13.5 |
S&P 500 Index | +1.2 | +7.7 | +7.8 |
Russell 2000 Index | -2.2 | +1.0 | +6.5 |
MSCI World ex-USA** | +2.8 | +11.0 | -1.5 |
MSCI Emerging Markets** | +2.8 | +16.6 | -0.7 |
Bloomberg Barclays US Aggregate Bond TR | +0.8 | +2.4 | +2.5 |
Source: Wall Street Journal, MSCI.com, CNBC, Morningstar
MTD returns: April 28, 2017—May 31, 2017
YTD returns: December 30, 2016—May 31, 2017
*Annualized
**in US dollars
Regards,
Peter
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.
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