Fourth Quarter 2017 Client Newsletter

As is so often the case, 2017 was truly a tale of two markets. The first two quarters of 2017 saw a reinvigorated North Korean missile program, a confounding communication style and policy direction by the new administration and little clarity about the fundamental sustainability of the burgeoning rally that immediately preceded the 2016 election. While a steady hand at the Federal Reserve, deregulation, and a lack of policy errors helped buoy the markets throughout 2017; the back half of 2017 was clearly dominated by a reacceleration in organic earnings growth.

As we begin 2018, we are inspired by the roughly 13% earnings growth and 6% revenue growth that are anticipated by Wall St. analysts. While about 4% of this earnings expansion can be directly attributed to the massive corporate tax cuts, it should not be overlooked that the remaining 9% is coming from organic growth. Organic growth is industry jargon that essentially means -- business is good, revenues are growing, and margins are expanding. When a broad index like the S&P 500 is showing above trend organic growth, it is a strong indication that ‘business is good’ not just here in the US, but also around the globe.

We are hopeful that 2018 will provide results that mirror or exceed that of 2017, but it goes without saying that every year poses risks that threaten to derail the market’s progress. The major threats in 2018 include: geopolitical shocks (North Korea, Middle East, etc.), Washington DC missteps (trade wars, FTC overreach), and a major shift towards tighter than expected monetary policy from the newly composed Federal Reserve. As always, we will be monitoring these impact areas throughout the year.

We look forward to providing a more extensive update in the coming weeks where we will go a bit deeper on the sector/industry impacts of tax reform and some interesting demographic dynamics that we think could shape 2018 and beyond. In the meantime, our most recent update is still available on our website under the ‘Latest News’ tab. We think it is still a very pertinent and timely discussion about current market themes.

Please let us know if you have any questions.