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Market Update

First Quarter 2017


Fearing the “Trump Bump”

We are now more than eight years into a bull market. The S&P 500 has more than tripled since March 2009, including a 10% rise since the November election - the so-called “Trump Bump”. As a result, we occasionally get asked whether we are adjusting our portfolios given market indices are at all-time highs, are perhaps overvalued, and therefore ripe for a correction. We also hear concerns that either a presidential misstep or a failure to deliver on campaign promises will leave stocks vulnerable to a significant decline.

Market highs are generally not a concern. The stock indices frequently hit all-time highs, which is precisely why we invest in equities. Regarding market valuation, stocks are fully valued but certainly not in bubble territory. The rise in equity prices has largely been driven by increases in corporate earnings. Simply put, the companies we own in our diversified portfolios are becoming more profitable and therefore more valuable. It’s also important to note that valuation has never been a reliable way of trying to time the market.

Despite our obsession with the daily twists and turns in Washington, we believe strong and improving economic fundamentals throughout the globe will make markets less susceptible to political shenanigans than commonly feared. As recently noted by investment analyst James W. Paulsen PhD:

“This has not been a stock market rally based on some flimsy “Trump Hope.” Rather, it has been importantly underpinned by one of the largest and most persistent economic improvements of the entire global economic recovery.”

This does not mean that we do not anticipate some market volatility. Since 1980, the S&P 500 has had an average annual pullback of about 14% and we would certainly not be surprised to see a market correction at some point in 2017. However, in our view, this stock market rally has a fairly solid foundation and, as always, we believe that investment decisions should be driven by your long-term plans, not the headlines of the day.

Market Update

The major equity indices were solidly in the black for the first quarter of 2017 and have registered robust returns over the last 12 months. Reversing recent trends, international stocks outpaced the US with emerging markets leading the way - reinforcing the value of having a globally diversified portfolio.

Please contact us if you would like to learn more about how our investment discipline can help you achieve your financial and life goals.

Sincerely,

DAVIDSON CAPITAL
Stanley P. Dyl

President

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