Market Perspective | June 2017 | Cautiously Optimistic

AEGIS Investment Committee (written by: William Bowman, CPA, Branch Manager RJFS) | June 15, 2017

 

In our last investment committee commentary we were cautiously optimistic. This came from the understanding that a new administration would bring forth change. Change in the form of tax cuts, deregulation, and reduction in government spending with the exception of continued spending for infrastructure, all on the heels of increasing economic performance since the third quarter of 2016. Because the market has performed so well we anticipated a potential pullback in February which never did occur.

We continue to be cautious because it’s still unknown how all this change will play out.

A few months ago we were a little more optimistic figuring that the House would be more supportive of the Trump agenda. Things appear to be getting done but not at the pace one would have thought with the Republican majority in the house. In the Senate there still needs to be 60 votes to get anything done, requiring a number of Democrats to break ranks. A tough task.

After the unsuccessful first shot at passing health care changes in the House, one would have thought the market would’ve shown more concern. On the second attempt a bill was passed on to the Senate with changes made to appease all parties. Here passage will become more difficult. On to tax cuts.

Corporate tax cuts could have a fairly direct effect on the market. For every 1% reduction in corporate rates we could hypothetically see an increase of .8% in corporate profits which would continue to provide upward movement in the market. As we continue it appears more likely, if tax reform is passed, that it would be effective for 2018. It is also expected to be somewhat watered-down to get the Senate votes needed to pass. Nonetheless the market would most likely buy into the tax change prior to the effective date.

In the meantime we have dropped bombs on Syria and the Mother Of All Bombs on Afghanistan and along with the continual bashing of Trump the market does not seem to be too frazzled.

As we have stated before, we believe we are in a secular bull market that will continue through 2017 and into 2018.

What continues to drive this increase is corporate earnings. Because of the continuing economic growth we anticipate the Federal Reserve will increase interest rates as much as .25% in June.

Of course there are things that could derail the market such as North Korea as well as the outcome of the Justice Department’s appointment of Robert Mueller as special counsel, which we will have the pleasure of dealing with for the rest of the summer.

In any event we will continue to monitor the market and how your accounts are affected. We will make all necessary changes and continue to communicate relevant information that will help us prepare for any market condition.

AEGIS Investment Committee 

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. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate of 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. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and investors may incur a profit or a loss. Individual investor’s results will vary. Past performance does not guarantee future results.

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