For the first quarter of the new year, we picked right up where last year left off. The ‘Trump Trade’ is in full effect, as domestic equities have continued their post election run on hope and expectation of a better business friendly environment. The possibilities of tax reform, a rollback of the current heightened regulatory environment, and meaningful infrastructure spending have all contributed to the current ongoing equity market run. It is best to keep in mind however, that proclaimed plans by the agenda do not always come to fruition. This has put a bit of uncertainty on the markets, which are all sitting at or near all-time highs. As ‘Trump Trade’ has been stalling, expectations are being reset. Soon we will hit earnings season which is always the most valuable data for stocks.
Below are returns of the five major indexes through the first quarter:
BarCap US Agg Bond +0.82%
S&P 500 +6.07%
Russell 2000 +2.47%
MSCI EAFE (Europe) +7.25%
MSCI EM (Emerging Markets) +11.45%
We are anticipating another strong earnings season going forward, with even more support for the stock market coming from corporate guidance that will be optimistic. As many investors are nervous, it’s important to keep in mind that markets tend to disappoint the majority.
We have stuck to certain major themes at Sloy, Dahl & Holst, Inc. over the last four years. Our allocations have focused on protecting against a rising rate environment, Financials and Energy both present attractive upside potential, and there’s more long-term value for investors within international markets than domestically. Investors who have remained patient are beginning to see these themes turn together. It remains important, as always, to remain patient as patience will be rewarded.
While the S&P 500 has been the best performing index over the last seven years, it’s important to remember that this positive run comes on the heels of a decade of being negative year over year. Investment cycles can take a very long time to play out, and reversion to the mean is real. We are seeing many investors chasing the S&P, but we will act contrarian as we typically do. The overblown move into Passive investing will in time bode well for active management and the allocations of our portfolios.
We thank you for your continued confidence and support. Please feel free to contact us directly to answer any further questions.
Sloy, Dahl & Holst, Inc.