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The third quarter of 2017 demonstrated just how entrenched this low volatility stock market truly is. There is a loose plan to revive a key pillar of the so called “Trump trade”: tax reform for individuals and corporations. However, the Fed has made it clear that it has no plans to become an aggressive tightener, which is good news that they will not trigger a recession.

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Natural and man-made events that occurred in the third quarter, especially within the final month, barely affected stocks. This suggests that companies could sustain or even accelerate their profitability in the coming quarters. While second-half 2017 forecasts call for solid revenue and earnings growth, which would stand to support U.S. stocks, we simply see better opportunities in overseas markets. History tells us a modest pullback is certainly possible in the months ahead.

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Now is not the time to deviate from a long-term asset allocation in pursuit of growth stocks. Although value stocks continue to lag growth stocks, they have strengthened recently. The gap between the performance of value and growth stocks narrowed from 13 percentage points in early September to less than 10. Cutting taxes is one of multiple factors that could spark stronger performance. Even if growth stocks’ relative strength continues, it’s likely that their outperformance is in its late innings.

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Short-term bonds – and short-term bond funds – may grow more attractive due to their ability to earn incremental income above cash and cash-like investments without much exposure to the risk of rising rates. Slow and steady interest rate increases stand to benefit short-term Treasuries and corporates, and it seems unlikely that the Fed will quicken its pace on rates any time soon.

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While the physical effects of the back-to-back storms will certainly pose a challenge to municipalities, a major impact on the muni market is not anticipated due to the speedy federal response to the natural disasters as Washington is proving to be a willing partner in the recovery effort. There will still be ample demand for munis even if tax rates drop.

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