Quarterly Commentary

Q3 2018 Commentary

For much of this year’s second quarter, fears of a trade war weighed on capital markets. Heated rhetoric over tariffs pushed stock prices down several times, with shares rebounding when the rhetoric cooled off. Thus far in the third quarter, the stock market seems to be shrugging off trade worries. Should it?

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Q2 2018 Commentary

Before we comment on the first three months of 2018, 2017 merits one last glance. Global stock market returns were excellent, but more striking was the complete absence of the kind of big swings that test in vestors’ nerves . The Dow Jones Industrial Average of thirty leading, blue-chip U.S. companies spent 239 out of 251 trading days within a 1% intraday range, the least volatile year in history. The biggest pullback for the year was just 2.8% (a gentle ride down over the course of six weeks), with only 1995 having a smaller drawdown. Every month in 2017 was higher than the last for the first time ever.

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Q1 2018 Commentary

As 2017 came to a close, stock market investors here and around the world had much to celebrate. As if superb investment returns–in excess of twenty percent on many indices–weren’t enough, Republican leaders in Congress finally delivered a tax bill that will slash U.S. corporate taxes and boost earnings. Although signs of euphoria have begun to appear (mortgages taken out to fund Bitcoin speculation qualify nicely), soaring share prices are not completely unjustified. The global economy, having begun to reaccelerate late in 2016 is now firing on all cylinders, with the Eurozone leading the way. The U.S. economy is doing its part as well, with capital expenditures beginning to perk up. While there is a great deal to debate in the tax bill as a policy matter, its near term economic impact will be positive. And even if it’s unclear how much of the reduction in corporate taxes will flow into the economy, shareholders win either way.

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Q4 2017 Commentary

The auspicious formula powering stock markets around the world remains intact. Economic growth remains strong in Europe, the U.S., Japan, as well as in China and most other emerging markets. Not surprisingly, a strong global economy is boosting corporate profits. Perhaps most importantly, interest rates remain remarkably low. We’ve made this point countless times but when investment grade corporate bonds are paying less than four percent and there are plenty of blue-chip stocks with a dividend yield of three percent or more and the possibility of significant price appreciation, stocks look reasonably attractive. And that’s true even if many valuation metrics make it appear that stock prices are at high levels.

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Q3 2017 Commentary

The KISS principle–Keep it simple, stupid—admonishes engineers to avoid unnecessarily complex designs. It’s also pretty good advice for anyone trying to explain the ups and downs of the stock market. In that spirit, there is a simple explanation for the U.S. stock market continuing to achieve record highs. Share prices are tightly linked to corporate profits, and bottom lines happen to be booming. For the twelve months ended March 31st of this year, S&P 500 earnings jumped 16.0%. For the quarter just ended, the corresponding number may come in at a whopping 22%1.

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Q2 2017 Commentary

For the better part of the last five months global stock markets have been on a roll. From last November’s presidential election through the end of the first quarter the S&P 500 Index climbed over 10%. Developed markets outside the U.S. rose even faster, gaining more than 12%. Conventional wisdom attributes the market gains to optimistic views of President Trump’s economic agenda. Accumulating evidence suggests, however, that markets may be reacting to something else.

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Q1 2017 Commentary

Twelve months ago, the stock market was in the midst of a sharp decline. By last February’s bottom, the S&P 500 Index had fallen over 11% on the year and 14% from its November 2015 high. That episode reminds us of several points that would be well to keep in mind at the current juncture. One lesson is that markets have a tendency to overreact. Another is that market corrections (a decline of more than 10%) are not unusual.

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Q4 2016 Commentary

From time to time, instead of devoting these pages to a recap of recent events in the economy and capital markets, we take a deeper dive into a specific issue. This quarter we examine the connection between aging populations and slowing global economic growth.

As we enter the final quarter of 2016 it appears that the global economy will decelerate for the fifth time in the last six years. Since 2012 global GDP growth has averaged around 3.2%, almost half a point lower than the 3.6% post-1990 average. While the shortfall is modest, it has been persistent and it’s worth trying to understand why.

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Q3 2016 Commentary

Should the United Kingdom remain a member of the European Union or leave the European Union?  Three weeks ago, on June 23rd, that question was put to the British electorate.  Markets opened the day confident voters would choose Remain.  Investor optimism was due in equal part to:  polls leaning slightly in that direction, a tendency for voter interest in risky referendums to fade in the voting booth, and plain old wishful thinking.  In the end, by a margin of 52% to 48%, British voters chose Leave.  The unexpected “Brexit” vote rattled financial markets and sent headline writers into overdrive.

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Q2 2016 Commentary

Early in the first quarter and for the second time in just over six months, global stock markets fell precipitously only to rebound sharply and recover almost all of the lost ground. Last summer the S&P 500 Index plunged by 13% in five trading days before climbing almost all
the way back in September. By comparison, January’s decline was more leisurely, with the index shedding a bit under 13% over three weeks, then rebounding sharply from mid-February to the end of March, at which point it was up a scant 0.8% on the year.

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Q1 2016 Commentary

The first weeks of a new year bring prognostications regarding the twelve months ahead. We’ve never put much stock in these predictions, but as we think about the investment landscape for 2016 (and the years beyond), there are a number of questions that strike as particularly significant. These are the issues we are paying close attention to and that we think about in managing client portfolios. If we had a crystal ball—and sadly we don’t—we’d use it to answer the following:

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Q4 2015 Commentary

As Wall Street traders prepared for their late August vacations, the U.S. stock market was rather quiet. After reaching all-time closing highs in mid-July, market indices had drifted slightly lower but were still up for the year. An August 20th CNBC headline proclaimed, “S&P 500 is having a dull year, and that’s good for investors.” That day, and the next few, turned out to be anything but dull as the 500 stocks in the index proceeded to lose 10% of their collective value in just over two trading sessions. Taking into account the speed of the decline, it was the worst stretch for U.S. stocks (and most other stock markets) since the depths of the financial crisis.

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