The buoyant mood that pushed stocks higher through year-end 2016 continued into the first quarter as signs of an improving global economy continued to mount. Stock indexes were up across the board. Emerging-market (EM) stocks were the star performers. (MSCI EM index +11.6%). Their double-digit gains eclipsed returns for developed international stocks (up 8%), and both outperformed larger-cap U.S. stocks (up 6%). Price-to-earnings multiples in most EM countries’ equity markets remain at the lower end of their 20-year averages, and we expect growth in emerging countries to outpace that of developed markets over the long term.
Investors took the Federal Reserve’s widely anticipated rate hike on March 15 in stride, treating it as another indicator of the U.S. economy’s return to form. Wage growth has returned, unemployment is well below 5%, and inflation is close to the 2% target. The Fed is now turning its attention to reducing its $4.5 trillion balance sheet.
Nearly continuous political upheaval is unhelpful for sustainable economic growth. For a number of reasons, the next three to six months are likely to be as turbulent as the last three in the United States. The most important good news is that the outlook for the basic health of the American economy remains strong near term, with a low probability of recession.
We expect the global expansion to persist in 2017. However, the wide distribution of potential political and policy outcomes poses uncertainty and may result in increased market volatility. In Europe, the outcome of upcoming elections in France and Germany may have unexpected impacts on markets. While to date investors have shown a remarkable degree of staying power, that does not mean they will continue to do so.
Our portfolios are prepared for higher volatility should it arise, and we remain confident in our positioning and in our investment process. Our focus remains on prudently managing each of our client’s portfolios to achieve long-term, risk-adjusted returns consistent with their investment objectives.
The foregoing content reflects the opinions of Treybourne Wealth Planners and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.