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4th Quarter 2017 in Review

Has the recent market action made you wonder, “What is next?” If so, you are in good company. Fortunately, we believe there are suitable investment solutions.

For most of 2017 aggressive investments including e-commerce stocks led the charge and helped many popular indexes reach new highs. Bargain stocks, with their good relative valuations, profitability and price momentum, took a back seat to the high-flyers. However, in the last few months this leadership has begun to change. Why is this important? Historically, when the tide shifts it tends to be for an extended period of time. Put simply, we believe now is the time to emphasize bargain investing.

Both stocks and bonds added to the bottom line of performance. Stocks benefited from momentum. While momentum is a good thing, it is often backward looking and unable to capture market changes until after they occur. Some concerns are more forward looking. These include expensive valuations and too much optimism.

For example, the typical stock’s price-to-sales (how much we have to pay to get $1 of a company’s sales) is at record highs. Also at record levels is Margin Debt, where market participants borrow money just to make additional stock purchases.

Given the state of the market and our risk indicators, we are maintaining a conservative posture in your portfolio.

Market Outlook

Regarding “What is next?” for the general market, it is certainly true momentum has been impressive. Recently, over 75% of S&P 500 companies were trading above their 200-Day Moving Average. Another reason some are optimistic is the recent tax cut law. There are estimates suggesting the tax changes could produce a 10% hike in earnings. Others believe repatriated funds (non-taxed overseas profits) will be used to buy back shares, much as it was last time taxes were cut for repatriated profits.

We have never shied away from our conservative roots and we will continue to work diligently to try to both grow and protect your portfolio. While we may experience some bumps in 2018, we have tried to position your portfolio in the best possible way to take advantage of opportunities we see. While overall market risks are high, a prudent approach is likely the best course of action. Happy New Year and best wishes for a wonderful 2018!


* S&P 500 is a leading indicator of US equities and is meant to reflect the risk/return characteristics of the large cap universe. Dow Jones Industrial Average is a priceweighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. Typical Stock refers to median stock in the JIR universe which follows over 8,000 stocks.

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