WESTBOUND AND DOWN LOADED UP AND TRUCKING

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BAM MARKET WRAP

May 26, 2017
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West Bound and Down Loaded Up and Trucking

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WHERE WE HAVE BEEN

May has proved to be another positive month for the markets (or at least most of them). The NASDAQ continues to lead the way with gains of 2.6% through yesterday. The S&P and Dow logged gains of 1.3% and .7% respectively. As we have harped for much of this year, the Russell 2000 is dancing to its own tune and refuses to follow the pack. The small cap index was down 1.22% for May. The divergence between the large and small cap indices raises questions about the health of the year-to-date advance. However, there are other measures that confirm the advance (upward trend in high yield bonds for example). Rarely in technical analysis do you have the all-clear signal but rather competing market measures that can paint different pictures. Our job is to sort through all the different measures and determine the weight of the evidence in making investment decisions. Despite the weakness in small-caps, the weight of evidence suggests this market has more room to run. However...

WHERE WE ARE HEADED

The market (and, in particular, the NASDAQ) has had a good run for the last few months. It is due for another pause or pull-back. A consolidation or small correction would not be a surprise over the next few weeks. The overall backdrop of the economy is showing signs of strengthening and absent a major hiccup in the Trump administration's promised tax plan, we believe that market weakness should be viewed as an opportunity to reallocate or buy rather than a reason to get too defensive. Principal protection remains a hallmark of our investment philosophy so we will continue to evaluate our thoughts and market indicators daily to protect your portfolio should things not go as we think. Fortunately, we invest based on what is actually happening and not what we think should happen! Two areas that have our attention currently are international issues and energy. As we have mentioned in our most recent market notes, many international markets have shown increasing relative strength to their US counterparts. On the flip side, energy has been in a steep downtrend for much of this year. The energy sector is an opportunity in the making. When a bottom is established and these funds turn back up, energy will be an area that we look at closely. All looks calm and pretty good right now but as we saw with the large drop on Wednesday of last week (May 16), things can change in a hurry. It wouldn't be difficult to imagine that another one day drop like last Wednesday's could turn out much different with investors taking gains and driving prices lower rather than the quick recovery we witnessed. Volatility is likely to increase over the coming months so we stand at the ready to respond.

HOW WE ARE DOING

Our portfolios enjoyed a good month with solid returns. Additionally, the portfolios responded well to the May 16 one day drop which gives us comfort that should the market turn down our holdings would hold up well. We made several portfolio adjustments during the month; selling our positions in small cap and paring our municipal holdings. The resulting proceeds were reallocated into international funds. We continue to be fully invested in a combination of domestic and international equities, high yield bonds, municipal bonds, and preferred stock funds.

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Tidbits
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MANY YEARS, NO CHANGE - The Social Security payroll tax rate paid by employees has been 6.2% since 1990 except for a 2% reduction in the rate during the 2 years of 2011-12 (source: Social Security).

MORE TAXES - Proposed House legislation ("Social Security 2100 Act") by John Larsen (D-CT) would increase the Social Security payroll tax rate paid by employees from 6.2% to 7.4%, to be phased in over 24 years from 2019-2042. Larsen's plan would also phase out the current $127,000 ceiling on earnings subject to payroll taxes so that by the year 2047 all earnings would be taxed (source: Social Security Office of the Chief Actuary).

ON YOUR OWN - 44% of American private sector workers (i.e., 55 million of 124 million private sector workers) lack access to any employer sponsored pre-tax retirement plan (source: AARP).

BIG PROMISES - The unfunded pension liability of the city of Chicago is estimated to be $27 billion, an amount equal to 11 years worth of the city's current annual tax revenue (source: City of Chicago).

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Our middle child and only son, Carter, graduated from UT-Knoxville a couple of weeks ago. About that same time, he accepted a job offer from a large mutual fund company in Denver, Colorado. He is very excited about the opportunity and the chance to live at the foot of the Rocky Mountains - Carter loves hiking, fly fishing, skiing, etc. It is a fantastic start to his finance career. The only bad news is that he is due to start on June 12. The next two weeks will be a whirlwind as we move Carter out of his Knoxville apartment and back home for a few days before shipping all his furniture to his new apartment. Kelly, Carter and I will start our journey west shortly thereafter with a stop in Salinas, Kansas. Carter's apartment won't quite be ready so we will take the extra few days we have and make a side trip to Las Vegas (I had promised Carter a father/son trip there) driving from Salinas straight to the Denver airport and onto Vegas. We'll hike in Red Rocks, watch the Predators in the Stanley Cup Finals, play a round of golf, and lose a little bit of money in the casino. It should be a great time and a last hurrah before Carter embarks into the real world. We'll head back to Denver "rested" and get Carter settled before Kelly and I fly back home. It is an exciting time.

DID YOU KNOW...

That Sam Bills is a former Vanderbilt Commodore and actually Dr. Sam Bills? After a successful high school football career at Marshall County HS, Sam enrolled at Vanderbilt and played tackle for the 1958 Commodores. He was a stout 6'0", 232 lbs - tiger meat wrapped in steel. The reasons are hazy (grades?, the pull of Rocky Top?, or to be with the love of his life Nancy?) but after his freshman year, Sam hung up his cleats and moved to Knoxville to finish his school work and reunite with Nancy. After graduating from UT, Sam went to work for the University while pursuing his doctorate in education. While still at UT, Bills Asset Management was launched on a part time basis in 1992. Two years later, Dr. Sam Bills retired from UT after logging 32 years there and followed his lifelong passion for stock market investing.

Last, but certainly not least, we remember those brave men and women that gave the ultimate sacrifice for the freedoms we enjoy. We hope you have a wonderful Memorial Day weekend.

Sam and Bo

Your financial partner for twenty years and counting because managing your money never gets old.

We continue to make posts to our blog throughout the week so check it regularly if you want to see our thoughts. You can access it by following the link below.

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In these uncertain times, a trusted financial adviser is more important than ever. Whatever comes over the upcoming months and quarters, the markets are certain to have lots of volatility and wild swings. Europe, the US economy and dysfunction in Washington, and continued trouble in Iran and the Middle East to name just a few. If you have family, friends and neighbors that may benefit from our services, would you please forward this email and/or provide our contact information to them. We purposefully do not spend time marketing our services so that we can devote all of our resources to managing your assets. Thank you to all who have provided us referrals - it truly is the greatest compliment you can give us.

BAM MARKET WRAP EXTENDED

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Remember to visit our blog for market comments and observations in between newsletters. We try to provide a few comments in between newsletters and certainly when there is a particularly interesting market day. You can access it by clicking here.

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Knoxville Office
Sam Bills - (865) 525-1329

Nashville Office
Bo Bills - (615) 371-5928

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BAM Market Wrap is produced and distributed regularly via email by Sam C. Bills, Jr. of Bills Asset Management 3001 Flagstone Drive, Franklin, TN 37069 Phone (615) 371-5928 Fax (615) 250-4903 - www.Billsasset.com

Bills Asset Management is an independent registered investment advisor (RIA) not associated with any financial institution. Data used in this publication is gathered from reliable sources, although completeness and accuracy cannot be guaranteed. Performance results do not take into account any tax consequences and are not predictive of future results. This publication does not give any specific investment advice, does not provide financial planning services, or consider any individual's financial situation, needs or goals. This publication may not be reproduced or retransmitted in whole or in part without the consent of the author, Sam C. Bills, Jr.

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