Here's To Your Wealth
April 2017
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The Markets:
Despite the abundance of bad news around the world and relentless headlines back home, the U.S. stock market continues to climb higher. According to BTN Research, through the first four months of 2017, the total return of the S&P 500 (i.e., through 4/28/17) is +7.2%, north of its +3.5% average return for the first 4-months over the last 25 years (1992-2016).
The stock markets have rallied for a variety of factors, notably stronger earnings and potential tax cuts. However, the markets also face the specter of a legislative setback out of Washington. While corporate earnings are the biggest driver for stock valuations, the increasing role of government leads Wall Street to keep a close on legislative developments. Click here for a recent appearance on Fox5 where I address these factors
.
Looking beyond the legislative front and the potential benefits of tax reform, there are several reasons to be optimistic about the stock market rally continuing. For starters, corporate earnings should remain strong for the remainder of 2017. After an "earnings recession" that lasted for several years, the past few quarters have seen a rebound in corporate profitability. Years of cost cutting has helped, but the growth in top line revenue is also a factor.
Profits will also benefit from more relaxation of costly regulations. Over the past several years or even decades, the increasing creep of regulation has worked its way into the economy. No industry knows this more than the financial industry (which may have deserved this scrutiny after the 2008 debacle). In any event, the reality is that fewer regulations are good for the bottom line of businesses so less regulation is considered to be bullish for stocks.
Overseas, Europe is finally seeing slightly stronger growth which is reassuring investors who are looking beyond the deeply troubling structural issues with the major European economies. Aging demographics, high youth unemployment, weakness in the banking sector, and political uncertainty are all causes for concern. But the major economies are gradually strengthening and GDP numbers are reflecting that. Plus on a relative valuation, European companies sell for less than their U.S. counterparts which some see as a buying opportunity.
Despite all the talk about a potential Federal Reserve Bank rate hike, the reality is that interest rates are still quite low by historical standards both here and abroad. Overseas, the rates are even lower and countries like Japan are showing no signs of raising rates any time soon. On the flip side, these low rates are an indication that global economies, while improving, are not without risk.
Finally, our economy is benefiting from stable oil prices. We don't hear much about oil prices when it stays in a trading range, and that is what has been happening recently. Generally speaking, when oil is in the $40 to $60 per barrel range, it offers a rosy scenario for both producers who can make a profit at that price level, and for consumers who can still find decent prices at the pump. At prices outside this range, there could be negative implications, but thus far in 2017 we have seen relatively stable prices.
Overall, the markets look to be rising on fundamental strength notably due to the increase in corporate earnings and the hopes of a tax cut. Near term risks to this rosy scenario include geopolitical risk and uncertainties about military conflicts. In the long term, we are concerned about the huge income gap and skill disparity throughout the U.S. and developed Europe and its impact on long term growth. Tens of millions of workers lack the skills to gain the financial life of the previous generation and technology is leaving them unemployed or underemployed. The wealth gap is widening and governments are running up huge deficits which will limit their ability to help on any real level. Hopefully our leaders will find some vision and enact meaningful legislation that addresses these important structural challenges. But for now, the party continues and there doesn't seem to be an immediate reason to leave.
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Poverty devastates families, communities and nations. It causes instability and political unrest and fuels conflict.~ Kofi Annan
Mark Avallone and the Potomac Wealth Advisors Team
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Potomac Wealth Advisors, LLC
15245 Shady Grove Road, Suite 410
Rockville, MD 20850
Phone: 301-279-2221
Securities and Investment Advisory Services offered through H. Beck, Inc., Member FINRA/SIPC. 6600 Rockledge Drive, 6th Floor, Bethesda, MD 20817 301.468.0100. Potomac Wealth Advisors, LLC is not affiliated with H. Beck, Inc.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.
Diversification and asset allocation do not guarantee against loss. They are methods used to manage risk.
This report has been derived from information considered reliable, but it cannot be guaranteed as to accuracy or completeness.
This report has been derived from information considered reliable, but it cannot be guaranteed as to accuracy or completeness.
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The indexes are constructed and weighted using market value-weighted index. They provide 95 percent market capitalization coverage of developed markets and emerging markets. More than 3000 DJGI indexes provide data on more than 5500 companies around the world. Market capitalization is float-adjusted *The DJIA is a widely followed measurement of the stock market. The average is comprised of 30 stocks that represent leading companies in major industries. * The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. *The NASDAQ Composite Index is a market-valued weighted index, which measures all securities listed on the NASDAQ stock market. *The S&P Mid Cap 400 Index This Standard & Poor's index serves as a barometer for the U.S. mid-cap equities sector and is the most widely followed mid-cap index in existence. To be included in the index, a stock must have a total market capitalization that ranges from roughly $750 million to $3 billion dollars. Stocks in this index represent household names from all major industries including energy, technology, healthcare, financial and manufacturing.
*The
Russell 2000 Index is a small-cap
stock market index of the bottom 2,000 stocks in the
.
* The
MSCI EAFE Index is a
stock market index that is designed to measure the equity market performance of
developed markets outside of the U.S. & Canada. It is maintained by
MSCI Barra,
[1]a provider of investment decision support tools; the EAFE acronym stands for
Europe, Australasia and Far East.
* The MSCI
Emerging Markets Indexs a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
*The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Consult your financial professional before making any investment decision.
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Learn more about Mark Avallone's recently released book, Countdown To Financial Freedom
 Recognized by:
The Washington Post
as a Greater Washington DC Region Five Star Wealth Manager (2015)
The Financial Times
as one of the country's Top 401 Retirement Plan Advisor (2015)
Private Wealth Magazine
as a member of their Inaugural All-Star Research Team (2012)
Washington Business Journal
as one of Washington's Premier Wealth Advisors (2011, 2012, 2013, 2014)
NABCAP
as one of the Top Wealth Managers in the Washington, DC Metropolitan Region (2011, 2012, 2013, 2014)
SmartCEO Magazine
Magazine Money Manager Award Recipient Finalist, Washington, D.C. Metropolitan Region
(2015)
Consumers' Research Council of America
as one of America's Top Financial Planners (2011, 2012, 2013, 2014)
DC Magazine
as a Five Star Wealth Manager, Washington, D.C. Metropolitan Region (2012)
SmartCEO Magazine
Magazine Top Wealth Manager, Washington, D.C. Metropolitan Region
(2012)
Financial Advisor Magazine
as an All-Star Research Manager (2012)
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