Market Insights
April 12, 2017
The weather in March supposedly “comes in like a lion and goes out like a lamb.” This March,
the stock market followed suit. After posting a new closing high on March 1st, the index ended
the month basically flat. Even without March’s contribution, it was a great quarterly start to the
year. The S&P 500 rose 6.1% (total return), handily outpacing the 1.6% first quarter average total
return of the prior twenty-five years.
So far, April has continued to remain range bound. With the first quarter earnings season not
yet in full swing, Wall Street’s focus has been squarely on the legislative progress in D.C., which
continues to be disappointing. This has the bearish camp pointing to high equity valuations. They
would have you believe price levels have risen based solely on overly zealous expectations for
stronger growth due to promised legislative reform. At a point, therefore, investors will run out
of patience and a market downturn is inevitable.
I am not clever enough to predict the timing of the next correction. Nevertheless, corrections
should always be expected and are frankly, healthy. They allow prices to rebalance back to more
reasonable levels, allowing for further upside in an ongoing bull market. It is helpful to recognize
too that corrections can occur in specific industries or sectors rather than the entire market. Also,
some corrections can be measured by length of time rather than sharp price declines. Stocks can
trade sideways or slightly down for a period, such as we have seen since March 1st. If first quarter
reports deliver another strong earnings season, valuations will appear more reasonable and
equities could resume their upward trend.
Of course, when closely watched indices fall enough there is always the worry that it may be the
start of a bear market. Given the current environment, I believe any correction would present
potential opportunities to buy rather than signal that worse is yet to come. My rationale is based
on our economy, which is already on solid footing and showing low probability of recession
ahead. The following data points may provide some of the reasons the markets are holding up
relatively well and investors are allotting more time to Washington:
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Final read on fourth quarter 2016 GDP was revised up to 2.1%
Unemployment dropped to 4.5%, the lowest level in nearly 10 years
Initial jobless claims have been below the key 300,000 level for 109 consecutive weeks
Consumer confidence registered 125.6 for March, the highest level in almost 17 years
ISM Manufacturing read came in strong at 57.2 for March
ISM Non-Manufacturing dropped last month, but 55.2 is still a level indicating healthy
growth
Even with good economic momentum, domestic stocks overall are not cheap so upside may be
limited. Our domestic fiscal policy changes will take time and the flow through benefits to
company earnings will take even longer. Are there other places to look? Fixed income lacks
appeal with the Federal Reserve projecting two additional rate increases this year. However,
overseas economies are finally showing resiliency. Upcoming elections in France and Germany
are adding to global policy uncertainty, but international stock valuations appear relatively
attractive. So, this may be an opportune time to consider increasing underweight exposures to
international within your overall equity allocation.
Linda S. Parenti, CFA
President & Chief Investment Strategist
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on
market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be
considered specific legal, investment, or tax advice. The information provided does not take into account the objectives, financial
situation, or particular needs of any specific individual. All investments carry a degree of risk and there is no certainty that an
investment will provide positive performance over any stated period of time. Equity investments are subject to company specific
and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed
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performance is no guarantee of future results.