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:
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.
The markets have continued their run from the end of 2016, and while we are richly valued, we feel there are economic reasons that justify the recent ascent. Compound the global economic rebound with the “deep breath” investors have now taken after the election, and it translates into a good environment for the markets. Some of the positives we are seeing are:
The market has been on a great run and we certainly welcome the growth. That said, we are priced to perfection and starting to see a few cracks in the internals of the market. After such a big run, we would expect a normal correction in this time frame. There is a strong economic justification for our recent run and we believe any correction in this time frame would eventually give way to higher prices later in the year.