February 2017 Market Commentary
Wow, what a start to the year! So far, 2017 has been the polar-opposite of the first quarter of 2016. We can only hope that it doesn’t reverse course anytime soon. As we’ve said previously, we’re more aggressively positioned than we have been in years, and so far, it seems to be paying off.
Last month we mentioned in our newsletter that our focus has been on the Growth side of the market and mostly focused on the Large Cap companies. So far this year, this segment has been of the strongest (see chart below). We were starting to see that potentially shift to the Value side, but it hasn’t happened yet. We will continue to monitor the trend.
YTD Chart of S&P 500 Index, S&P 500 Growth, and S&P 500 Value
Bonds – The bond market has been quite a “mixed bag” so far this year. On the government / US Treasuries side of the market, there hasn’t been much movement to speak of. This segment was hit the hardest when interest rates were raised in the fourth quarter of 2016. On the other side, Corporate and High Yield bonds have been relatively strong – and have been our top bond holdings so far this year. However, it appears a strength shift back to US Treasuries may be occurring. That is something we’ll be keeping an eye on in March.
Gold – It’s no secret that we’re not big fans of gold, a non-producing asset. But due to interest in the asset class, we do now keep an eye on it more than we did previously. Gold is having a decent year so far. The GLD (Gold ETF) is currently up 5.4% YTD according to Morningstar Data. However, we’re curious to see if we get a repeat of last year. The first half of 2016 was very positive for gold, while the second half was not. Gold ultimately gave back most of the gains in the second half of the year. Hopefully that won’t happen again, but we’re keeping it in mind.
Finally, we’re still watching and waiting for guidance relating to corporate tax rates. While the Price/Earnings Ratio (PE Ratio) is looking over-valued, a change in taxes would (in theory) create a boost on the Earnings side of the equation. This would result in a ratio level that would justify further up-side in the overall US stock market – potentially lifting all boats. The typical 401k saver could also benefit from this boost.
Overall, the market has been easier to navigate recently than it has been in quite some time. And we’re enjoying it while it lasts!
1 The Standard and Poor’s 500 is an unmanaged, capitalization weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.