The Markets and Your Money – Sandi Weaver, CPA, CFP®, CFA®

Marilyn Brohm |

We’ve had quite a run lately, but perhaps this bullet train is slowing some. The stock market’s S&P 500 companies pulled in a 6% return this quarter, on the heels of 3% returns in both the 3rd and 4th quarters of 2016. Compare these to the prior 2% and 1% quarterly returns early in 2016, and you can see growth is back.

Our typical portfolios – that’s your money – have the most dollars invested here, in U.S. companies. But in the typical portfolio here we also invest about 15% of your money overseas. How are those markets doing? Overseas stock markets have zipped ahead of us this year, earning 7%. In the past 4 years, overseas investments have earned less than U.S. so that trend may be reversing.

Our typical portfolios – again that’s your money – have significant amounts invested in bonds. Those made .8 of 1%. It’s been difficult to make money in bonds lately. Although bonds earned 4% over the last 10 years, it’s been below that the last couple years and will likely remain so this year.

Our best guess?

Barring unforeseen factors – either negative or positive – hitting the economy, we are hopeful that the typical portfolios here should see modest single-digit growth, similar to last year, perhaps something between 5% and 10%. The years of double-digit returns, which we had in 2012 and 2013, are likely over until the next business cycle swings. What matters most to your returns? Short term? Almost anything. Over the long-term, it’s the growth rate of corporate earnings and interest rates.

Like many other pros, we see the market heading sideways for a while, or perhaps pulling back (think -10%). A correction (think -20%) is possible but not likely. But we’re due, and the odds are low that the short-term action from here will mimic what we’ve seen since last November’s election.

What’s been going well for us?

Corporate earnings are looking sanguine. The experts are predicting 1st quarter’s earnings to grow 9%, which may be a tad optimistic. But 4th quarter’s earnings grew 4%, and 3rd quarter’s earnings grew 8%, which reversed a long line of flat-ish growth.

Unemployment remains low, at 4.7%. Our economy is at full employment. Wages grew at 2.8%, a healthy figure.

Consumer confidence is reaching new highs not seen since the year 2000.

President Trump’s ground roots “de-regulation” efforts are spurring business expectations. If his tax changes get through, that should boost business too. See my article in the Kansas City Starfor more details:

Europe’s prospects for growth may be coming back on track, given recent political elections.

What’s not so hot?

Our U.S. GDP (gross domestic product) growth came in at a tepid 1.6% for 2016.

Britain’s filing of Article 50 has started their departure steps from the European Union. Hopefully others will not follow.

President Trump is batting 0 for 2 thus far, if you count his travel ban and attempted repeal of ObamaCare.

The U.S. stock market’s valuation is pretty high – 26.5 on trailing 12-month earnings, and 18 on forward earnings. The historical range is 12-22; 16 is viewed as fair value. In order to bring this high valuation back down to average, stock prices have to drop or corporate earnings need to increase.

Music to soothe…

We have plenty of smart heads in this firm:  4 CFP’s, one with a CFA, plus years of experience. Our best strategy is to identify what we know, to know what we can’t know, and to use probabilities. We read to stay current. We check our opinions against the research data. We’re slow to make changes because history has proven that’s prudent. While we leave the emotions out, we are always mindful of how much you depend on us.