Articles In 2017

DATE:            April 1, 2017

TO:                  POINT VIEW CLIENTS

FROM:           David G. Dietze, JD, CFA, CFPTM Founder and President

 

I.         2017 First Quarter Performance

  • Equity markets continued to rally in Q1, up 6.1% following S&P 500 companies posting consecutive quarters with year-year earnings growth for the first time in three years. Hope for tax reform, deregulation, and infrastructure by President Trump and the Republicans continued to be the rallying cry for the bulls. However, gridlock on the repeal of Obamacare has cast some doubt for investors. Data on the economic front continued strong, with jobs and wage growth exceeding expectations. This led the Federal Reserve to proceed with its first of three intended rate hikes in 2017, and its first back-to-back rate hike in over ten years.
  • The bond market and gold, typically considered the safest asset classes, remained volatile. The yield on the US 10-year Treasury, although declined during the quarter from 2.6%, remained elevated at 2.3%. Bonds continue to underperform stocks, but foreign investors are compelled to buy US Treasuries because the comparative yield is so great. 

   MARKET DATA

03/31/2016

03/31/2017

First Quarter

2017

S&P 500 (dividends reinvested)

17.19%

6.07%

NASDAQ (dividends reinvested)

22.89%

10.13%

60/40 S&P 500 / TX-EXEMPT SECURITIES BLEND.

10.17%

4.27%

DOW JONES INDUSTRIALS (dividends reinvested)

19.75%

5.17%

INTERNATIONAL STOCKS (MSCI EAFE IX ID)

11.60%

7.23%

TAXABLE BONDS (Barclay’s 1-3 Yr Gov’t/Credit)

0.73%

0.41%

TAX-EXEMPT SECURITIES (Barclay’s Muni Index)

0.15%

1.58%

                      

  • For example, the yield on the German 10-year bund is .25%, substantially less attractive than the US 10 year. Gold rallied at times on geopolitical headline risk, but sold off on interest rate hike fears. Given geopolitical uncertainty, we continue to believe gold deserves an allocation in a diversified portfolio. 

  • Despite valuations creeping higher, stocks remain the best alternative to bonds or cash. The S&P 500 is trading at 17.5 times 2017 price-to-earnings multiple. This is above 5, 10, 20, and 25-year average. However, this is nowhere near the dotcom bubble multiple of 27x, or the financial crisis bottom of 10x. 

  • Healthcare continues to suffer from headline risk and the uncertainty surrounding the fate of Obamacare and the drug pricing market, both Presidential targets. However, the market is pricing in a lot of negative news in the sector. Healthcare is an attractive sector for the long-term investor.

  • Retail stocks, particularly the big-box stores, sold off hard during the quarter. Their business models are under assault from Amazon and ecommerce. Mark downs on inventory continue to pressure margins. Foot traffic at malls is declining. Companies are closing stores to rationalize square footage. Investors are wrestling whether the sector is a value trap, or a compelling long term investment opportunity?

 

PREVAILING YIELDS AS OF:

FIXED INCOME ASSET

03/31/16

06/30/16

09/30/16

12/31/16

03/31/17

US Government 10 Yr. Note

1.78%

1.49%

1.61%

2.45%

2.40%

5-Year Certificate of Deposit

0.83%

0.81%

0.81%

0.82%

0.89%

Money Market

0.06%

0.10%

0.14%

0.23%

0.11%

 

II. Looking Forward

Remaining disciplined and staying diversified are key to long term investment out performance. Stocks are not overly attractive, but are currently better than bonds, while cash yields almost nothing. If stocks continue to rally, interest rate rise, and bonds sell off, investors need to stay disciplined to rebalance their portfolios. At some point, higher interest rates will be bad for stocks. Yields on bonds will become attractive again for the first time in over ten years. Rebalancing is paramount.

II.  ENCLOSURES

The enclosed shows the recent performance of all of your Fidelity accounts (if under management for more than 3 months and fully invested by Point View), and your investment advisory invoice. Our annual Privacy Policy update is also enclosed.

 

Article Index

Has the "Great Rotation" Finally Begun? - John Petrides, 3.31.17.

Traveling Abroad for Investment Opportunities - Elaine Phipps, 3.31.17.

Allocate, Rebalance, Reduce! A Primer for a Profitable Portfolio - Donna St.Amant, 3.31.17.

Growth v. Value v. Momentum - Barbara Tomalonis, 3.31.17

Back to Basics - Your 401K - Claire Toth, 3.31.17.

Buy Bonds Now? - David Dietze, 3.15.17.

The Market Outlook Amid Record Highs! - David Dietze, 2.21.17.

10 for 2017! Investment Picks for the New Year - David G. Dietze, 1.6.17.

Your 2017 Resolutions - Claire Toth, 1.6.17.

Technology: The Go-Go Dividend Stocks - John Petrides, 1.6.17.

Closed Fund Open Mind - Donna St.Amant, 1.6.17.

Today's Bond Market - Should I Stay or Should I Go?- Elaine Phipps 1.6.17.

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