1330 Orange Ave., Ste 302
Coronado, CA 92118
p: 619-319-0520
f: 855-691-0427
Read financial tips and market updates in our weekly newsletter
Copyright © 2002 – 2023 Orion Capital Management LLC • Coronado, CA
Disclosure: Orion Capital Management LLC (“Orion”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC). The firm offers advisory services in the State of California and in other jurisdictions where registered or exempted. Registration does not imply a certain level of skill or training. The information on Orion’s website or in its distributed commentary shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons or entities of another jurisdiction unless otherwise permitted by statute. Orion’s individualized responses to consumers in a particular state in the rendering of personalized investment advice for compensation shall not be made without the firm first complying with jurisdiction requirements or pursuant to an applicable state exemption.
The information on Orion’s website or in its distributed commentary is not investment, tax, accounting or legal advice. Orion is not a tax advisor. For tax advice individuals should consult their CPA. This information is also not an offer or a solicitation of an offer to buy or sell any security, or to be construed as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon in the making of investment decisions. All content on this site is for informational purposes only, and nothing herein should be construed as an investment recommendation. Opinions expressed herein are solely those of Orion, unless otherwise specifically cited. Material presented is believed to be from reliable sources, but no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas described on Orion’s website or in its distributed commentary should be discussed in detail with an investor’s personal financial advisors and legal counsel prior to implementation.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested.
The information on Orion’s website or in its distributed commentary is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, Orion Capital Management LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.
Testimonials or reviews on Orion’s website are from current clients. Orion does not compensate for reviews or testimonials and has no material conflicts with clients offering reviews.
Orion does not warrant that the information on Orion’s website or in its distributed commentary will be free from error. Your use of this information is at your sole risk. Under no circumstances shall Orion be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided on this site, even if Orion or an Orion authorized representative has been advised of the possibility of such damages. Information contained on this site should not be considered a solicitation to buy or an offer to sell any security, or a recommendation to buy or sell any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
Schedule a quick introductory call with you and see if we would be a good fit for you.
A Wait-and-See Market
A Solid Quarter
Global equity markets had a solid first quarter, continuing the trend that started after November’s U.S. election. U.S. stocks, as measured by the S&P 500 Index, advanced 5.5% in the quarter. The Stoxx Europe 600 Index was also up 5.5%. The first quarter, from a volatility perspective, was the calmest quarter in U.S. markets since 1967, with the S&P 500 posting an average daily move of just 0.32%. Stocks reached their best levels at the beginning of March and have drifted lower since.
Bonds, after losing lots of ground as interest rates spiked up during the post-election stock rally, flattened out in the quarter. The ten-year U.S. Treasury note yield fell to 2.396% from 2.446% at the beginning of the year. Even with two Federal Reserve Bank 25 basis point Fed Funds rate hikes in the quarter, longer rates didn’t budge. The stable yields on longer-term Treasury debt in the face of two rate hikes reveal investors’ slightly increasing skepticism about the trajectory of the economy.
Tempering Influences
The enthusiasm investors had for stocks as the new year arrived now seems to have been tempered somewhat by three factors: the new administration’s challenges thus far to move its legislative agenda forward, already-rich valuations for equities and a darkening geopolitical situation.
Agenda Challenges
The Trump administration’s setback with regard to health care reform has cast some uncertainty on the administration and its ability to push through its agenda. Investors are probably foreseeing tougher battles ahead in Congress for Trump and probably also a lengthening timeline on things like tax reform and an infrastructure bill.
Rich Valuations
Since the election, investors have accorded many stocks higher price-to-earnings (P/E) multiples—essentially giving stocks credit for growth that is yet to be realized. But the underpinnings of the recent market strength are strong nevertheless. U.S. companies are now beginning to report their earnings for the first quarter, which is expected to be the strongest quarter for profit growth in six years. (Profits may be 9% higher than last year.) Earnings have been in a strong recovery for six months now, but now revenues are also expected to be significantly higher. In the years following the 2008-09 crisis, companies bolstered their profits largely by cutting expenses, not growing their sales. Corporate revenues, which are expected to grow by 7.1% this quarter, should help to meaningfully increase the profits of companies that have spent the last eight years becoming more streamlined and efficient.
Souring Geopolitics
The geopolitical situation has soured in recent weeks, and investors have accordingly pulled back somewhat from risk assets (stocks) and moved some money into safe havens (bonds, cash and gold). There are three specific situations that investors are monitoring closely.
First, the launch of 59 Tomahawk missiles onto a Syrian airfield in retaliation for the Assad regime’s recent chemical weapons attack marked a change in U.S. policy toward Assad and increases the likelihood of a butting of heads with Russia, a Syrian ally. Just in the last day, Secretary of State Rex Tillerson was in Moscow, presumably, to try to convince Putin to abandon Assad. Russia, which enjoys its influence and military presence in the region due to its relationship with Assad, is highly unlikely to play ball.
Second, tensions between the U.S. and North Korea are on the rise. Pyongyang has conducted several missile tests in recent months, seemingly trying to demonstrate its military prowess to the new administration in Washington. President Trump, in a recent meeting with Chinese President Xi Jinping, asked for China’s help with tackling the North Korea matter. Whether any cooperation from China is forthcoming is unknown. In any event, he told Xi that the U.S. would deal with the problem alone if China were unwilling to help. (The Syria missile barrage may have convinced both China and North Korea to take him more seriously on this pronouncement.) USS Carl Vinson, an aircraft carrier based in my hometown of Coronado, is now on its way to the region.
Third, the French Presidential elections are set to begin in two weeks. Normally, global investors would pay very little mind to this event. However, this time the National Front candidate, Marine Le Pen, has, if she wins, promised to hold a referendum in France as to whether or not the French should remain in the European Union. If she were to win the election, investors would have to seriously contemplate the prospect of France hiving off from the EU. The polls have her moving into the run-off round but ultimately losing the election to Emmanuel Macron. We’ll see.
The stalled rally in stocks shows investors are looking for more meat on the bone – tax reform, regulatory reform, a feasible infrastructure plan, solid corporate profits – before they push the market higher. 2017, at its outset, seemed like it would be an interesting year. So far it has not disappointed.
Please do not hesitate to contact me if there is anything about the markets or your portfolio that you would like to discuss.
Share This!
Join Our list!
Join our email newsletter list to receive more market updates and financial articles like this one.
The Fed and Jackson Hole
Fed to Present Update at Jackson Hole on Friday In the year since Federal Reserve Chairman Jerome Powell’s last speech
Soft Landing Back in Play
Soft Landing Hopes Rising A “soft landing,” a scenario in which the Federal Reserve tames inflation through interest rate hikes
Markets Calm Amid Crosscurrents
Both stock and bond markets seem to be taking today’s many conflicting financial and political cross currents in stride, with
Peter Thoms, CFA, MBA