Current Market InsightsSubmitted by Connecticut Wealth Management, LLC on April 25th, 2017
After an extended period of low volatility, markets have been more challenging to navigate over the last several weeks. The S&P 500 has retreated since its last high on March 1, and long-term interest rates have declined over the same period, pushing bond prices higher. These kinds of consolidations can be reassuring and healthy for markets from a longer-term perspective, as what may have initially been overly optimistic expectations regarding the timing and impact of pro-growth policies in Washington, D.C. adjust to a more realistic timeline.
Policy will continue to dominate the headlines, but prospects of better economic and earnings growth will be the foundation of any potential market advances. With improving business and consumer confidence, a more stable U.S. dollar, and a rebounding manufacturing sector, real economic growth in 2017 has the potential to come in higher than what we have seen over the last several years. Further, earnings for S&P 500 companies could grow in the high-single digits in 2017, helped by steady economic growth, stable profit margins, and rebounding energy sector profits. There is also the potential for enhanced profitability as a result of corporate tax reform.
To that end, some policy risks have declined as President Trump has become more focused on his primary legislative agenda. While the president retains his emphasis on fair trade, trade tensions with China have abated some after the president shifted his emphasis from currency manipulation to enlisting China’s cooperation on the North Korean threat, and as his tone on renegotiating NAFTA has moderated.
Despite a steady economic and earnings backdrop supporting markets, there are still several risks that need to be carefully monitored. A policy mistake by a major government or central bank, geopolitical threats in the Korean Peninsula and Middle East, and elevated stock valuations are among the challenges markets face that may contribute to bouts of increased volatility. We are also closely monitoring near-term events, such as the French election, to gauge their potential impact to your portfolio. Please remember that, despite the discomfort that accompanies difficult markets, opportunities can come from volatility, and we are here ready to capitalize on those opportunities as they present themselves.
As always, if you have any questions, please do not hesitate to reach out to us.