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Q2 2017 Review: Markets Focus On Corporate Growth, Not Politics

While media remains fixated on the White House, the markets during Q2 were more attuned to corporate results and central bank activity. Investors saw solid gains and a smooth ride with the S&P returning 3.1% for the quarter – it was never up or down more than 2% in any of the three months. International stocks outperformed the United States for a second straight quarter.

Markets Focus on Corporate Growth, Not Politics

While much of the world’s attention has been focused on Trump and the administration’s next steps, the market has been more focused on economic and corporate growth than speculation around politics. Earnings growth for the S&P 500 during the third quarter is estimated at a healthy 6.6%, supporting high valuations and rising prices. With yields near all-time lows on much of the curve, the upside from owning bonds has decreased, but we believe they offer valuable diversification from stocks and should be a part of most portfolios.

U.S. Stocks, Central Banks & Timing the Market

U.S stocks are relatively expensive right now with the S&P’s PE ratio sitting at 25 (as of July 10, 2017) For stocks to produce further gains, either earnings must increase or valuations must get more extreme. One challenge to this is that profit margins are already at or above multi-decade highs...