A April Overview

The markets have rallied to new highs in the last month, with the rally very broad in nature.  Most major indexes have jumped to new highs and we are continuing to see leadership in the Technology and Financial Services sectors.  If the economy continues to improve, this rally could continue, albeit with some bumps in the road. There are a couple of thoughts we have regarding this market and the economy:

  1. One of the big question marks last year was Brexit (Great Britain leaving the European Union).  The UK’s vote to detach sent global markets lower.  However, European economies have continued to expand and this looks like a “non-event” to long-term economic growth.
  2. The earnings season has been very good in the US and the numbers have surprised to the upside. The media likes to attribute this post-election rally to the results.  But, beneath the surface, the rally is being driven by an accelerating global economy and better earnings.
  3. We cannot help but think that the next economic slowdown will come from rising interest rates.  This won’t play out in the short-term.  Inflation will act as a catalyst for higher rates and we will be watching very closely as we move forward.  

The markets are currently in rally mode and it’s a welcome change from the crazy volatility we experienced last year.  That being said, we would expect volatility to rear its ugly head at some point this year.  But, we believe the path of least resistance is still up.  So, we will look to use market volatility to our favor.  

A March Overview

The markets have continued higher through the first couple months of the year, as global economic data sets continue to impress.  At some point, maybe soon, the markets need to take a breather.  But, to this point in the year, there has not been a catalyst for a pullback.  Intuitively, we thought the Federal Reserve’s recent rise in interest rates would cause investors to pause.  However, Fed Chair Jane Yellen’s comments were dovish and this kept investors on the buy side.  Unlike many rallies we have seen in the past couple years, this one is being driven by strong economic improvement.  A few points:  

  1. In February, the global composite PMI (manufacturing) remained close to a three-year high and consistent with world GDP growth of around 3½%.
  2. Headline inflation has rebounded sharply over the past couple of months, reaching the Central Bank’s target in the Euro-Zone and exceeding it in the US. However, underlying inflation remains very low almost everywhere, suggesting that policymakers will persist with exceptionally accommodative monetary policy for a long time yet.
  3. Monetary indicators reveal that bank lending is growing at a steady pace in all the major advanced economies.
  4. World GDP growth accelerated to around 3½% on an annualized basis in the second half of last year. This is partly due to stronger growth in China, but aggregate growth elsewhere also picked up.  

Unlike we have seen in the past four or five years, this global economy appears to be gaining a lot of traction.  There will certainly be potholes along the way.  For example, the Federal Reserve will most likely raise rates three times this year.  But, we believe any correction in this time frame would be healthy and lead to further upside by year-end.   

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