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From our CIO | Market Update 3.1.16

by: Rick Wedell
published: March, 01st 2017


Market Update – 3/1/2017

Major indices were up a little north of 1% yesterday morning as the market was loving the Trump speech.  A significant amount of airtime is being spent commenting that the president sounded, well, presidential for the first time in his many campaign appearances.  He did not offer much in the way of policy specifics, but he did outline grand plans to restart the US economic engine, making it clear that “America First” is his priority.  That is all the markets have seemed to need to hear.  From a specific policy perspective, the Republicans need to get the repeal / replace Obamacare issue out of the way before they move on to more significant tax reform or infrastructure spending issues, and it’s unclear when we will have an answer to those questions.

In the meantime, interest rates are also rallying, with the 10-year popping up 7.5bps (basis points) to a touch bit under 2.5%.  Treasuries had clawed back a decent amount of their recent losses through the month of February, and, as we’ve commented before, it is generally a good thing to see the bond market sell off a little as equity markets rally, as it means both markets agree with the general movement in the market.  The odds of a March rate hike have climbed to a whopping 80% according to Bloomberg, and if that is the case it gives a little more credence to the notion that we might have 3 rate hikes this year versus 2.  Once again, we are trying to stay a little short on the interest rate curve in the Steadfast models, which is a modestly bullish comment on the market.

A couple of articles have come out recently commenting that the driver of the equity rally since Trump’s election has been primarily retail investors.  This started with commentary from JPM last week which was essentially rehashed in a Bloomberg article yesterday, and it’s premised on the massive flows into ETF’s over the past two months compared to the relatively paltry flows into more actively managed funds.  Bull markets tend to be positive feedback loops for retail investors, so I’m not sure why this information should come as a surprise to anyone, but it is worth noting that the “smart” money appears to have been a little on the sidelines over the course of the last few months.  Of course, that also means that the “smart” money has not overly participated in the rally, so take that for what you will.

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Rick Wedell is not affiliated or endorsed by LPL Financial.

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