Giving Investors Something to Smile About

  • Equity market rally in domestic and international markets favorable for investors
  • Fundamental indicators remain supportive of economic growth (jobs, housing, corporate profits)
  • No signs of pending recession or inflation
  • Geopolitical uncertainties abound

The Smile

With the S&P closing at a 16.89% return year to date, global equity markets have given investors a whole lot to smile about (CNBC, 2017) Equity returns have been positive in most regions with India a standout performer among emerging market economies.

Surrounded by ocean on three sides and the imposing Himalayan Mountains to the North has resulted in the country being free from outside interference for much of its history. It is the dominant force in South Asia and with the world’s 2nd largest population of 1.3 billion people, it has the opportunity to be the region’s growth engine in the years to come. (World Bank, n.d.) As is the case with every emerging economy, the risk that we see development and growth without a hiccup or two is stronger than compared to developed economies.

Prime Minister Modi has done a fantastic job of making positive changes within a very trying political environment, not only that, but in the recent past he has strengthened his bargaining and negotiating ability through a number of electoral victories for his party. We expect the Indian economy to continue expanding and outpace its competitors such as China.

An interesting divergence from past patterns has emerged this year and has many scratching their heads. We have seen economic expansion for the first time in 8 years as 2nd Quarter GDP accelerated to +3.1% QoQ and the early 3rd Quarter reading is +3.0% QoQ. (CNBC, 2017)

Yet with this GDP expansion we have seen no sign of inflation even beginning to rear its head. Needless to say, there are always consequences for Fed’s QE program. The result is that we are seeing economic growth together with an interest rate curve that is flattening as short-term rates rise slowly and long-term rates remain stable.

By any historical measures, with the Unemployment Rate in the U.S. at 4.2% in September, we are seeing the economy at “full employment” (a historically low Participation Rate skews this number somewhat), but surprisingly we have not seen wages rise in lockstep. This has resulted in a perplexing lack of inflationary pressure in US markets at this time.

The Frown

In terms of the U.S. equity market, the largest risk at this time remains the inability of our incompetent politicians to deliver a re-worked tax code.

The House and The Senate have approved the GOP tax bill.

Looking abroad, we are not discounting the geo-political risks that exist internationally e.g. Sunni/Sh’ia conflicts (best indicated by the Saudi versus Iran differences), Russia’s expansionary vision, China’s economic realignment which has social implications, Islamic terrorism expanding into Western societies, and Turkey’s growing influence due to her geographic positioning.

And this means WHAT for your portfolio?

At ACG Wealth, we based our asset allocations on our understanding of where you are in life, coupled with our assessment of how global economic factors are likely to impact your investments.

As the economy changes, we practice what is called “tactical asset allocation” in response. We base the weighting of each asset class within your portfolio upon our outlook for each asset class for the next 6 to 12 months.

The equity market run and the lack of inflationary concerns leads us to a more favorable outlook for equities over bonds. However, we are by no means ruling inflation out. Our core model at this time portfolio has exposure to equities, both developed and developing, cash, and a small allocation to commodities.

For a fuller explanation of the economy and your portfolio, email acg@acgwealth.com with “Portfolio Strategy Consultation” in the subject line.

Sources

CNBC. (2017, November 21st). S&P 500 Index. Retrieved on November 21, 2017 from https://www.cnbc.com/quotes/?symbol=.SPX.

CNBC. (2017, October 27). Breaking news: US economy grows 3.0 percent in third-quarter. Retrieved on November 22, 2017 from https://www.cnbc.com/video/2017/10/27/gdp-up-3-percent-in-the-third-quarter.html?play=1

World Bank. (n.d.) Data: India Population, total. Retrieved on November 21, 2017 from https://data.worldbank.org/country/india.

Disclaimers

Securities offered through Arkadios Capital Member FINRA/SIPC. Advisory Services offered through ACG Wealth, Inc. ACG Wealth and Arkadios Capital/Arkadios Wealth are affiliated through common ownership. Certain individuals associated with or employed by ACG Wealth may also be registered representatives of Arkadios Capital.

This information has been obtained from sources believed to be reliable but is not necessarily complete and cannot be guaranteed.  The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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