As we move towards the second quarter of 2017 we continue to be optimistic, although this optimism is tempered a bit by the acceleration of the past several weeks. The US markets have continued to rally and both political and economic expectations are high. We believe that as this market matures, stock selection will become increasingly important and that longer-term, our global investments will begin to play a larger role in the production of overall return.
The US markets have moved forward at a rapid clip since the election over the idea of an administration that is calling for protectionism, fiscal stimulus, tax cuts, and deregulation. Although we are still optimistic about what this could mean for growth of the US economy, the markets have moved at such a strong pace that they could be getting a bit ahead of themselves.
Expectations are high, and there is plenty of room for the administration to come up short of these expectations. Talking about ideas and policy direction is one thing, the speed and difficulty of implementation is another. If these policies are effectively rolled out in a timely manner and economic data begins to support the market’s current hypothesis, equity prices and valuations may be justified and continue to rise. The risk lies in the speed and success of implementation, and effectiveness of these policy decisions.
US stocks have progressed largely in concert, and the rising tide has lifted most ships. Throughout the remainder of 2017, we see stock selection and the hunt for value becoming increasingly important. Uncovering undervalued stocks in our selection process not only allows us to potentially enhance our overall return, it helps build strength and resistance in your portfolios through lower valuations, and higher dividends.
In a rising market with lofty expectations it is important to participate, but also to anticipate and manage risk. Our balanced portfolios are built on a strong framework of diversification, and although the benefit of global diversification has narrowed as globalization has increased, it offers an undeniable benefit to the stability and strength of your portfolios. Currently, international equity valuations seem reasonable, and we expect that as things eventually cool off here at home, we should see an increase in relative momentum from our international holdings.
For now, US stocks still seem to offer the best prospects for positive return given the current interest-rate levels and the state of the global economy at large. We are seeking attractively valued positions in our selections for your portfolios, and participating in the market while remaining measured in our optimism and outlook for the coming months.
The views expressed by the author are his own and do not necessarily reflect the opinion of Wells Fargo Advisors Financial Network or its affiliates.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments.
An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations. Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. Diversification does not guarantee profit or protect against loss in declining markets.