Various stock indexes are enjoying an all-time high, with the Dow Jones
Industrials crossing the 22,000 mark for the first time. Almost three
quarters of companies reporting have far exceeded expectations in both
revenue and profits, and FactSet forecasts this trend continuing through
the second half of the year. While real economic growth at home for 2Q
wasn’t great, the overall outlook is still quite bright.
The U.S. financial sector may finally be back on its feet, with growth
indicators from S&P 500 financials showing profits close to the 2007
peak. Rising profits are predicted to be returned to shareholders by way
of dividends and stock buybacks, and banks are poised to become dividend
growers, all of which contribute to an economy on the upswing.
Skilled active management can provide returns above broad-based market
benchmarks over time using a variety of techniques such as factor based
investing. Value and momentum can be helpful in generating attractive
returns relative to the amount of risk taken.
At the halfway mark of 2017, the dominant market themes are the same as
when the year started, like the Trump economic plan and the Federal
Reserve’s decision-making. An optimistic vision of economic growth under
Trump lifted asset prices in the months following the November election.
Investors rushed to position themselves for major tax cuts, regulatory
rollbacks and an infrastructure boom. Over the past eight months, some
regulatory actions have been taken, but the rest is still in the promise
As we approach the midpoint of 2017, investors are still trying to make
up their minds about the Trump agenda. Primarily they are trying to
decide whether to keep hoping for results or to write it off. Whatever
they end up deciding may have a sizable impact on how the second half of
the year plays out.