Although markets have continued to move at a decent clip, investors have remained somewhat cautious due to the high level of political uncertainty. So far this year the economic climate has been favorable for U.S. stocks, and international holdings have finally begun to contribute in a meaningful way. This has been welcome news for globally diversified investors.
When markets have made substantial forward progress, it’s always a good idea to pay close attention to investor sentiment. For the last several weeks these numbers have remained neutral, and we have yet to experience the level of excitement and euphoria we might expect during the later stages of a bull market cycle. We can attribute much of this skepticism among investors to the current political backdrop.
Investors are currently evaluating the new administrations ability to deliver their pro-growth agenda. This coupled with an investigation into White House ties to Russia, and growing tensions with North Korea have given them pause. Skepticism can be good for the health of the market. We would always rather see investors considering their actions. This type behavior supports the idea that the market is moving under its own power rather than being fueled by irrational expectations and greed.
The economy continues to show signs of stability. Unemployment continues to fall, reaching 4.3%1, its lowest point during the last 10 years. Corporate earnings are up, and gross domestic product growth for the first quarter was given an upward revision from 0.7% to 1.2%2. We believe this trend will continue through 2017, and in this climate the Federal Reserve will continue taking measured steps to raise rates and perhaps begin to lighten up its balance sheet.
Global equities have been a highlight so far this year, and have added quite a bit of steam to our portfolios. We believe in the many benefits of global diversification, and although these assets have struggled over the last several years we are pleased to see them moving with conviction and contributing in a meaningful way.
There continues to be a substantial amount of political uncertainty, and we can only expect this to continue. With uncertainty comes volatility, and the road to 2018 will no doubt be full of twists and turns. The U.S. economy remains relatively sound, and global markets have made substantial progress so far this year. For now, it seems as though investors still have their wits about them and for the health of the market, we hope this trend continues.
1 Bureau of Labor Statistics
2 Bureau of Economic Analysis