Buoyed by the optimism of a new pro-business policy environment, including favorable tax reform, the stock market continued to rally into the first quarter of 2017. This optimism led the Dow Jones Industrial Average and the S&P 500 to rise 4.6%, and an impressive 5.5%, respectively. While the market did end on a high note at quarter's end, however, several things began to shift during the month of March, as we witnessed roadblocks in regards to passing new legislation in Washington. Delays in a health care bill also caused investors to question the time frame in which we could expect to see new policies on tax reform.
That said, we remain optimistic about the business-friendly environment, and believe tax reform will go more smoothly. Additionally, because the market is always driven by earnings growth over the long term (and with 1Q earnings season now upon us), we do expect increased optimism from managements on their quarterly conference calls, which should continue to buoy market sentiment.
CAIM portfolios benefited from our overweight positions in the Consumer and Healthcare sectors during the first quarter. And while Financials are now taking a pause, after a very strong 4Q17, we remain overweight in this sector on increased business lending. The trend of higher interest rates will benefit this sector over the long term. We also maintain a healthy position in Energy - last year's best performing sector - as a strengthening economy, combined with increasing geopolitical tension, is usually good for energy pricing and sentiment.
To reiterate; the market can expect some volatility as it moves forward, particularly after a strong run. We understand these moments can be unnerving for investors. But we firmly believe CAIM's investment in companies with strong balance sheets and cash flow, that pay dividends AND can increase them, acts as a natural hedge during difficult times.
