Global Expansion Trends Persist

The Week in Review

  • Government Shutdown Looms
  • Tax Bill Central to Early Earnings Trends
  • Another Dow Milestone
  • Betting on Bitcoin: Investment or Gamble?
  • Looking Ahead

While Washington dithers over a government shutdown, Wall Street has barely taken notice as stocks have advanced for yet another week. In fact, stocks are off to their best start to a year in a decade-and-a-half.

The latest buzzword to take the place of FAANG (an acronym for several of the tech stocks powering the markets higher) is FOMO, or "fear of missing out." Some evidence suggests that investors who've waited too long on the sidelines of this bull market have finally acquiesced and begun moving money into equities--- a vivid example of why attempts to time the market are a poor substitute for smart asset allocation and portfolio diversification that would have kept them invested and participating in stocks' gains all along.

While we remain ever-vigilant and are well aware that market corrections (in the form of a 10% or greater pullback) are par for any market course, we still believe that low interest rates, strong economic fundamentals and rising corporate earnings reflect the overarching trend of domestic and global expansion.

For the year through Thursday, the Dow Jones Industrial Average has returned 5.3%, while the broader S&P 500 has gained 4.7%. The MSCI EAFE index, a measure of developed international stock markets, is up 4.4%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has climbed to 2.88% from 2.71% at 2017's end. On a total return basis, the U.S. bond market is down 0.8%, signaling a challenging, but not unexpected, start to the year for bonds.

Government Shutdown Looms

A government shutdown will occur at midnight tonight absent even a temporary spending agreement on Capitol Hill. We've seen this many times before and, as noted, stock prices do not appear to reflect much concern. We'd call that the "Boy Who Cried Wolf" effect. Investors and traders have heard the hue and cry of "shutdown" so many times that even though the wolf is close to the door, they're dismissive of it. Quite possibly, this is because all prior shutdowns have proven to be forgotten blips on your (and our) portfolios' screens. In the near term, if it's not averted, we would not be surprised to see a bite taken out of recent stock gains and a bit of a rebound in bonds. Calls for investors to "buy on the dip" would be of little surprise, either. 

Tax Bill Central to Early Earnings Trends

Corporate profit reports for the fourth quarter have barely begun to trickle out, though next week the stream will become a flood. With the new tax bill roiling corporate accountants, it's no surprise that banks and financial institutions, which have been the first companies to report, are using the tax legislation as a reason to explain their varied results. But fewer than 10% of companies in the S&P 500 index have disclosed numbers, so there's no real clear picture yet for how 2017 ended, nor what corporate chieftains see for their businesses in the year ahead. The loose trend so far is bullish guidance about business conditions, even if there are individual challenges for each company to face.

Apple made headlines this week when it announced plans to repatriate hundreds of billions of dollars in cash currently held overseas. Wall Street is eagerly waiting to learn how the company plans to deploy this cash hoard, but indications suggest capital expenditures for new campuses, data centers and new jobs are in the future. Of course, there is also speculation about stock buybacks and future acquisitions, all of which could be answered when the company hosts an earnings call for investors and analysts on February 1.

Another Dow Milestone

It seems like only yesterday (actually, it was January 4) that market-watchers were cheering the Dow crossing 25000 for the first time. Well, fans of big round numbers had more to celebrate Wednesday when the Dow surpassed 26000 just eight trading days later--- the index's fastest 1,000-point run. Don't get us wrong; we're as happy as the next investor to see stock prices moving up rather than the alternative, but we are not celebrating this latest milestone.

Here's the math: To rise from 25000 to 26000 required just a 4% gain. Yes, the Dow did make that move in only eight days, but, including Wednesday, there've been 124 eight-day periods when the Dow moved 4% or more just since the market bottom in March 2009. Expand that view back to the end of 1999 and there've been 263 such moves. So is this some unique event? Not particularly.

Betting on Bitcoin: Investment or Gamble?

The bitcoin roller coaster captivated many in 2017 and continues to garner a ton of attention in the financial media. Is bitcoin the future of commerce or the latest speculative bubble to burst? Curiosity and confusion have been heightened so the research team at our parent company, Adviser Investments, has addressed the topic in a new special report, Betting on Bitcoin: Investment or Gamble?(Spoiler alert: We think it's the latter.) We hope you find this straightforward analysis illuminating and welcome you to share it with anyone else looking to learn more. Please click here to read this exclusive report, and we encourage you to contact us with any questions or comments.

Looking Ahead

Next week, we'll see reports on the manufacturing sector, new and existing home sales, mortgage applications and housing prices, leading economic indicators, durable goods orders and a first look at fourth-quarter GDP. There's also a weekly update that we rarely mention, the Energy Information Administration's petroleum status report, which has been of more interest as oil prices have been on the rise of late. We use it to keep a finger on the pulse of oil supply and in turn on the pulse of global consumption as a gauge of the rate and pace of expansion.

If you'd like to learn more about our tactical or fundamental strategies, please contact Steve Johnson at 844-587-7393 or info@bravercapital.com.

Please note: This update was prepared on Friday, January 19, 2018, prior to the market's close.

This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm's Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be seen as a recommendation to buy, sell or hold any of them.

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