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Investment Insights: Inking the Inauguration

Wade Balliet
Posted by Wade Balliet
Investment Strategy

This weekly report presents insights from our Global Investment Management team.

Crowd of gloved hands raising a few American flags with the Capitol looming in the distance during an Inauguration Day event.President Trump was inaugurated into office last week amid rallies and protests lining the streets that continued into the weekend. In his first few days in office, Trump has already put forth executive orders to freeze new agency regulations, withdraw from the Trans-Pacific Partnership, and renegotiate the North American Free Trade Agreement. These actions will have strong effects on production and trade for the U.S. on a worldwide scale.

The president also signed orders to prepare for the repeal of the Affordable Care Act among other social and intergovernmental directives. Investors are still on standby to determine which campaign assurances will become reality.

Financial markets climbed higher on the news of a more “laissez-faire” approach to business. Domestic stocks were mostly flat during the day of the Inauguration, but they have rallied the first two days of this week; the S&P 500 Index reached another record high of 2,280 as of close on Tuesday. The pro-business actions from the executive branch weren’t the only things buoying markets as quarterly earnings data are rolling in. Despite being early in the reporting season, growth in sales and earnings have already hit the positive levels of last quarter and are giving investors hope for even stronger corporate earnings growth at the end of 2016.

International markets were a little rockier, as countries abroad digested news that will heavily influence global trade. Overseas markets also had to absorb the U.K. Supreme Court’s ruling that Parliament must vote to start the U.K.’s withdrawal from the European Union. This will likely be a hurdle for Prime Minister Theresa May who seeks a more straightforward “hard Brexit” than others in the British government. This would mean that the U.K. would take a hardline stance on issues like immigration and would distance itself with regard to trade and regulation from the European Union. The ruling will also give Parliament the opportunity to bog down the bill and could make a timely and comprehensive separation of the U.K. from the union almost impossible.

Over the past few months, our strategies have remained slightly overweight equities, but with a defensive tilt within all three major asset classes. While the domestic growth forecast may be notably improving, there are still uncertainties surrounding exactly what agreements and laws will be passed under the new administration. However, positive earnings growth could lend credence to the higher than historic price-to-earnings multiples in stocks. Internationally, the concept of a “hard Brexit” could cause market upheaval if the process is not transparent and orderly. Our team will continue to monitor key issues as we proactively position our portfolios.

Chart showing market returns as of 1/24/17

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Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. The information in this newsletter is for informational purposes only and is not intended to be investment advice or a recommendation. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.

Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.

International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

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