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Keep Your Eye on Corporate Earnings, and Turn Off the TV - 4/3/2018

As fiduciary investment managers, we appreciate the market-friendly results from phase one of the Trump administration in regard to corporate deregulation and tax cuts. 2017 was a great year for investors. As we enter phase two of the president’s term, we are concerned that he is becoming a foe of the market in regard to his tariff threats, his affinity for trade wars, and his attacks on U.S. corporations like Amazon. In spite of what the president says, trade wars are not good and they are not easy to win. There were no winners to the trade war started by the U.S. at the beginning of the Great Depression. If the president still views the market as the grade for his job performance he needs to change his behavior.

 I am grateful to Anthony Isola at Ritholtz Wealth Management for condensing the most important investment principles on a single notecard:

  • Markets average one -14% annual decline
  • Daily dips of 2% or more occur about 5x per year
  • Every 5 years or so markets decline 30%+
  • Markets rise almost 3 out of every 4 years
  • Over long periods markets significantly beat inflation
  • Selling low and buying high never works
  • Turn off the TV and don’t check your account
  • Never make important decisions based on emotion

     These are the facts. Everything else is a scare tactic.

With all this to worry about, economic fundamentals remain strong. As reported by the Organization for Economic Development and Cooperation, 45 of the largest global economies are growing, and the majority of them are experiencing accelerating growth. Ed Yardeni, a veteran Wall Street analyst and author estimates that the new tax cuts have raised expectations for the S&P 500 earnings growth rate from 10% to 19% in 2018. There is an old investing mantra, “Wall Street climbs a wall of worry.”

As a shout-out to the bond market, using this asset class for diversification produced a positive return for bond fund investors in March. Twenty-six out of the thirty bond funds we use in client portfolios posted positive returns for the month. I believe the measures of economic strength will prevail for investors over the drama of tariffs and trade wars. We always welcome your calls. Be grateful for spring!

Best regards,
Jim Bell, CFP®
President, Chief Investment Officer

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