In the first half of 2017, we have seen strong equity market growth despite uncertainty that continues to surround our political environment.  It seems like every week there is a new “development” or failure to pass legislation in Washington. With healthcare legislation in limbo, Washington Republicans are now turning their focus to tax and infrastructure reform. The markets have appeared to shrug off these negative headlines and continued moving up due to positive economic fundamentals. 

As the headline states, there are actually some good things taking place.

First, in the United States, we have continued to see earnings improve. Year over year, S&P 500 earnings grew 13.8%* in the first quarter of 2017 and revised estimates have called for 10% earnings growth in 2017*. Secondly,overseas earnings have improved even more as developed and emerging economies continued to grow. Third, the Federal Reserve has continued on its path to interest rate normalization which is a reflection of their view on economic stability. 

Since the election in November, we have seen a nice run in the equity markets. In our opinion it appears that part of these returns are due to the future expectations of tax reform, reduced regulation and infrastructure spending.  Now that the healthcare reform vote has just been pulled (again), we are becoming slightly more concerned about the Trump agenda and the uphill battle to get anything through Capitol Hill. If these agenda items do not go through, we could see a more dramatic Wall Street reaction than what we have seen with healthcare.

As Jeff Saut, Chief Investment Strategist, states in this video, we believe we are still in a secular bull market. The S&P 500 has now seen its seventh consecutive quarter of positive returns which means we are statistically due for a pullback of 5-10% along the way*.  These types of pullbacks are a normal part of a bull market. In fact, since 1980 the S&P 500 has averaged approximately a 14% correction annually**, but finished the year down only 8 times over those 37 years. 

As we said last month, our outlook remains Cautiously Optimistic. We will continue to monitor the markets and make changes based on current developments.  

View Saut’s short video here:  Gleanings – “You Know It’s a Bull Market” 

These are opinions of Jake Harmsen and not necessarily those of Raymond James. The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. 
Sources:  

* Freedom Market Commentary  (https://d2zm3gcvr8kng7.cloudfront.net/media/documents/12fcdd4d-cbc9-49d1-ae24-53e9edd65c7a.pdf)

** Staying the Course  (https://d2zm3gcvr8kng7.cloudfront.net/media/documents/7229ba2f-042a-498c-941d-d2b8cb1c45ed.pdf)