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Low Market Volatility in Time For Summer Vacations
Stocks continued to rise during May, bringing the Dow Jones Industrial Average, S&P 500 Index, and the Nasdaq Composite Index to new highs, while enthusiasm for mid-cap and small-cap stocks waned.
After the first attempt failed, House Republicans narrowly approved legislation to reform major parts of the Affordable Care Act. This legislation was passed on to the Senate and moves Republicans one step closer to fulfilling their promise to reshape American health care without mandated insurance coverage. The Senate will rework the House bill before passing the bill onto the President to be signed into law. Passage of the health bill is critical as Congress cannot really begin on tax reform until the health care bill passes into law.
The U.S. economy added 138,000 new jobs during May against expectations for 185,000. Unemployment fell to 4.3%, the lowest rate in 16 years. The report signaled continued growth in the labor market, although employment has been slowing. Job creation for April and March was revised lower with the three month average now standing at 121,000 versus 181,000 over the past twelve months.
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Mid-May was dominated by political headlines concerning Trump's firing of FBI Director James Comey. This caused investors to question Trump's political commitment. Heightened political chaos in Washington has also begun to stir investors' concern about the administration's ability to successfully execute Trump's pro-growth agenda. This resulted in one of the largest downward moves so far in 2017. However, the volatility was short lived and only touched the 50 day moving average for the S&P 500.
French presidential elections concluded during the month with a victory for Emanuel Macron. This resolved one of the largest political risks in the region as fears of France embracing nationalism and Euroscepticism are now on hold. The broader Eurozone also showed improvements with consumer and business confidence rising and the 19-country bloc's unemployment rate improving. The supportive global backdrop was also beneficial to emerging market stock indexes. International developed and emerging markets were the best performing asset classes among our mix during the month.
Benign inflation and political uncertainty contributed to the narrowing of government yields globally. Inflation is now in a declining trend as the yearly percentage change in oil prices has rolled over from the heightened levels of a few months ago. The odds of another Fed Rate increase at the June meeting are now over 90%. The strong labor market certainly supports a rate hike, while a continued fall in the inflation rate may present somewhat of a conundrum for the Fed in the future. Both investment grade and high yield corporate bonds outperformed government bonds during the month as credit spreads contracted.
The S&P earnings season wrapped up with positive surprises in both revenues and earnings across all sectors. Markets pushed higher in the final full week of the month as the President traveled overseas for the first time in his presidency, and daily chaos in Washington waned, at least momentarily. Market volatility remains very low in an uncertain environment, creating the concern that the markets may be too complacent going into the summer.
We made no changes to our target weighting for stocks, bonds or alternative asset classes during our monthly asset allocation committee meeting. We remain slightly underweight stocks with an eye towards increasing our equity weight upon any meaningful market pullbacks.
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Senior Vice President, Senior Portfolio Manager & Market Strategist
Tracy joined the IBERIA Wealth Advisors team in September 2010 and has 20 years of investment management experience. She has a broad background in fiduciary asset management which includes portfolio management for high net worth individuals and institutions, asset allocation policy making, investment management consulting, equity research, and equity and fixed income trading. Tracy manages client accounts across the IBERIA Wealth Advisors footprint and oversees the construction and management of IWA's two proprietary equity strategies, Dividend Focus and Growth Focus. She serves as a member of both the IWA Asset Allocation and IWA Investment Policy Committees. Tracy is a frequent speaker on economic and investment topics within the community and authors many of IWA's investment publications. She has been included twice in the Birmingham Business Journal's Table of Experts Series. Tracy graduated from the University of Alabama with a Bachelor of Science degree in finance and is a CFA Charterholder. She is a member of the CFA Institute of Alabama and has a Series 65 license. She has served as an industry mentor for the CFA Student Research Teams from both The University of Alabama and Samford University. Tracy is a past member of the Episcopal Dioceses of Alabama Finance Department and currently serves on the University of Alabama at Birmingham (UAB) Finance Department Advisory Board.
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Disclosures
Views are as of the date above and are subject to change based on market conditions and other factors. The views expressed are those of the author(s) and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.
The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities or sectors listed. Diversification and asset allocation do not assure a profit nor protect against loss.
The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Past performance results are not indicative of future results.
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Presentation is prepared by: IBERIA Wealth Advisors
Copyright © 2017, by IBERIA Wealth Advisors; All rights reserved.
Investment Products: * Not FDIC Insured * Not a Bank Deposit
* Not Insured By Any Federal Government Agency * No Bank Guarantee * May Lose Value
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