2017 Performance and 2018 Outlook:
· The Trump Bump accounted for a 6.5 trillion dollar increase in the U.S. economy, low interest rates, and more jobs created by any President in recent memory.
· The S&P 500 closed up the year over 21% in positive returns and the only asset class to be negative was commodities.
· The Tax Deal was completed in late 2017 and will take effect in 2018 and should be a net positive for the markets. Everything from lower corporate taxes to a one time low tax on repatriation of large corporate profits held overseas could add quite a kick to our New Year.
· Foreign stocks and emerging markets were a good place to be in 2017
· Geopolitical tensions began to ease at year end with increasing domestic political tension.
· Increased volatility due to extended bull market. Speculators will aggressively trade the dollar, bitcoin, and the VIX index itself. Everyone will be looking to call an end to this long bull market.
· For reference purposes, the longest bull market in history was from 1990 to 2000 and extend over 113 months. Today, this bull market is standing at 105 months.
· We advise 15-20% cash taken from high flyers and equity profits. In the equity space, we generally feel that clients should ride out their holdings. Options, short term bonds, and cash can be used to minimize volatility; therefore, the theme is to stay “long” quality equity and not panic, no matter what the volatility.
· The biggest risk we have faced over the past 30 years is time spent “out “of the market and an inability to return to it.
· Our outlook is for 2018 to be a year of higher volatility, an increase in domestic political fighting with the upcoming midterm elections, and a general increase in corporate profits. Stocks are still going to be “the place to be,” provided that investors can handle the natural corrections. We also favor international investments in that there are still values to be enjoyed in those markets. Finally, we are net bearish on bonds of all types. We would prefer tax free to taxable in general and would stay away from any type of junk. Short term municipals would be our alternative to treasuries or cash.
· For those interested in which companies will benefit the most from the tax deal, we would suggest the industrials, consumer staples and telecom. These companies were taxed at generally the highest rates. Most of the benefit has already been derived by the Energy and Technology sectors, but the actual implementation will still be felt in their balance sheets. Finally, consumers and small business will be net winners.
· In summary, this is a year when knowing your risk tolerance and asset allocation will be as important as any.
Happy New Year!!!!