In February, the Dow Jones Industrial Average gained 6.2%, the S&P 500 floated 7.03%, and the NASDAQ increased 4.54%. In any transition from one leader to another in a bureaucracy as large as the Federal Government, there is a window where the incoming administration has to get settled in and acclimated to its new role. Given that the country is only a little over one month into the Trump Administration's governance, the idea a great deal has changed in the actual day to day functioning of the economy is probably premature. Yet, there has been a dramatic shift in the perception of the business environment, especially for leaders of corporations and small business owners.
The most noticeable change is the increase in confidence of people who have the potential to make decisions about deploying capital. Prospective legislation to help businesses become more competitive in any number of ways (reduced compliance costs, lower corporate taxes, lower health care costs, repatriation of capital, trade protection) gives more certainty to any entity grappling with how to grow their business. If you add in the potential for full expensing of capital expenditures and how it improves tax posture, it is actually easy to understand why the ever important c word is on the rise.
Does that mean the coast is clear and all of these changes will get passed in a universally embraced tax bill and budget? No way, but as far as the markets are concerned, voting has already taken place, with a click of the buy button. With the latest figures regarding interest rates, GDP growth, and corporate earnings all going pretty much according to plan, attributing market performance to anything else is probably not accurate. Yes, certainly, the election result was important, but the perception of policy difference is clearly a factor as well. Looking into the future, the same confidence can be sapped just as quickly. For now, however, the business community is speaking loud and clear about how it sees the future.
Global Economic & Financial Markets Outlook- World Markets Float As Asia and Eastern Europe Lead the Way (All country index data provided by the market data section of the Wall St Journal, February 28, 2017.)
The first two months of 2017 have proven quite beneficial (so far) for stock investors, especially in the countries of Asia and Eastern Europe. For example, the Hong Kong (Hang Seng) Index is ahead by 8.7%, the Sensex (India) is up 8.2%, and the Straits Times Singapore gained 7.9%. Joining this party is the PSEi Index (Philippines, +5.7%) and the Taiwan (Weighted, +5.4%). Not to be outdone are the returns of the WIG Exchange in Poland, ahead by 13.4%, and the BIST 100 of Turkey (+12.3%).
Generally speaking, most global geographies have seen 2017 returns in the neighborhood of five percent. Interestingly, down south continues to be a a place where capital is flowing as Argentina (+13.0%), Brazil (+10.7%), and to a lesser degree Chile (+4.4%) all have seen solid results. Western Europe has stayed modestly ahead (0-3%) while Canada has been flat. Looking ahead, it will be interesting to see how global currencies react to the well telegraphed series of Interest rate hikes by the Federal Reserve Board. If currencies worldwide get volatile, to expect equity markets to stay calm is probably fanciful, at best.
Y H & C Investments: Sector Analysis: Plenty of Winners To Choose From (All sector data is provided by the market data section of the Wall St Journal, February 28, 2017. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
The activity of the domestic stock market over the last two years is a good example of why investors should have a well balanced portfolio. Last year, defensive areas like telecommunications and utilities were where gains were reaped. During the first few months of this year, the best returns have been found in sectors generally thought to perform better during an expansionary phase of the business cycle.
Industries like financials (+5.52%), media (+8.29%), industrials (+5.57%), basic materials (+6.27%), real estate (+9.26%), and technology (+10.31%) have all been strong performers. Utilities (+4.87%) have been steady while traditional energy groups have lagged (-5.8%). Interestingly, health care has held up nicely as well (+9.07%). Essentially, the positive start to the year shows why solid advice is to generally stay diversified and optimistic about owning equities.
Y H & C Investments: The Art of Contrarian Thinking: Playing the Long Game Is Easier Said Than Done When Faced With A Stagnant (Or Worse) Stock Price.
(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
If you are an owner of individual stocks, you might be familiar with the following situation. You are investing for the long term (say five years or more) and you own the stock of a company which has historically performed well. However, the current situation is difficult because of specific industry conditions. The management team is experienced and excellent, as is the business model. Tried and tested, the operational team is well seasoned over the last decade. Still, the last few quarters have seen poor results so the stock has been punished. You have been through this experience with other companies and by adding to the position, or at least sticking with it, the stock typically recovers.
Seems like a happy ending, right? Of course, but the hard part is remaining patient while the proverbial paint dries. Day after day, month after month, in some cases, year after year, the business does not improve. Usually, you are investing for growth, yet you get nothing of the sort, instead, your reward is the other g-word, grief. What does one do? If you believe in the management and the business model, and most important, see evidence of operational improvement, I suggest that nine times out of ten it is worth your time (and capital) to hang in there. Quality usually wins out, the proverbial crème rising to the top. Easy to say, much harder to do, but paying attention to operations give you the data to base your decision on.
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder