Viewpoints are a series of white papers on the way we see life in this financial world we live in today. We hope you will enjoy.

Off to the Races

Written by Jim Underwood, CFA, Chief Portfolio Strategist

As we approach November 8th, I am repeatedly asked, “How will the outcome of the upcoming elections impact investment markets, and which is better for the stock market – Republican leaders or Democratic?” My honest, easy answer (or non-answer) is always – “it depends”. However, let’s see if any broad generalizations can be made based on historical observations.

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Please enjoy market commentary each quarter from Chief Portfolio Strategist James W. Underwood, CFA.

Conflict Resolution

August 2017

Investors trying to navigate the markets are likely scratching their heads trying to reconcile conflicting messages being sent across the investment landscape. U.S. economic growth remains positive but anemic, as the expectation of accelerating growth following the U.S. Presidential Election continues to disappoint. According to the Bureau of Economic Analysis, the final GDP growth tally for Q1 was a sluggish 1.4% while projections for full-year 2017 are falling fast.

Despite the top-line economic headwinds, corporations have delivered robust bottom-line earnings growth over the first half of 2017. According to FactSet, S&P 500 earnings growth during the first quarter was 13.9%, the highest level since Q3 2011, with expectations for continued strength during the second quarter. Contributing to the robust year-over-year earnings growth has been an earnings recovery within the Energy sector, bouncing off the dismal lows from early 2016. Potentially more enduring is an improving global environment, particularly across Europe and emerging markets. According to FactSet, S&P 500 companies with more than 50% of their revenue coming from outside the U.S. experienced 20%+ earnings growth to start 2017.


Equity Market Review

Against this backdrop, equity investors were clearly focused on the strong bottom-line, pushing equity markets higher.  Within the U.S., the S&P 500 ended the second quarter up 3.1%, bringing its mid-year result to 9.3%.  Reviewing sector returns, nine out of eleven S&P sectors gained ground during the second quarter, led by the Health Care sector’s 7.1% advance.  Despite uncertainty related to the future of the Affordable Care Act, strong balance sheet fundamentals and relatively attractive valuations continued to support the sector.  On the opposite end of the spectrum, the Energy and Telecom sectors have lost value in both quarters to start 2017.  Investors have looked beyond the transitory improvement in energy earnings and focused on excess supply concerns, weighing heavily on the Energy sector’s performance, while the Telecom sector is the only area projected to report a year-over-year decline in revenues.

Reviewing style and capitalization benchmarks, growth companies continued their dominance over value companies across the capitalization spectrum.  Year-to-date, growth companies have outpaced their value counterparts by over 9%, as measured by the Russell 3000 Index.  2017 has continued a longer-term trend which has resulted in a 60% cumulative excess return over the last decade for growth companies.

Investment conditions outside the U.S. continued to improve.  Election concerns in France subsided as Marine Le Pen’s anti-euro campaign was rejected, leading Mario Draghi to state “political winds are becoming tailwinds” in Europe.  Equity and bond markets across Europe climbed early, but stalled late in the quarter as Draghi questioned the need for continued European Central Bank (ECB) stimulus programs.  The stabilizing economic landscape along with potential policy changes by the ECB sent European currencies sharply higher.  In other major markets, the Japanese economy benefited from robust export growth; however, personal consumption and inflation continued to lag.

Fixed Income Review

The Federal Reserve continued its rate normalization program by raising the Fed Funds rate 0.25% in June and projected a steady march higher in 2018 and 2019.  Additionally, the Fed announced it would likely start reducing the size of its balance sheet “relatively soon”.  This backdrop would certainly be challenging for bond markets; however, bond investors discounted the Fed’s future projections, focusing their scrutiny on the economy’s recent top-line weakness, most notably the lack of inflation.  This skeptical view of future activity actually caused longer-term yields to decline, supporting Treasury prices, and flattening the yield curve.

Credit sectors generally outpaced their comparable duration Treasuries, as strong corporate earnings growth caused investment-grade corporate bond spreads to contract to levels not seen since 2014.  Finally, tax-exempt bonds benefited from the flattening yield curve environment.  Additionally, supply and demand forces have been favorable over the first half of 2017 with new issues down 14.1% year-over-year.

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Securitas, derived from the latin word for security, is an Article Series by Welch Hornsby, meant to help raise your awareness of the importance of information security.

Smartphone/Tablet Theft 2nd Quarter 2016 Security

Written by Jon Atchison, Information Security Coordinator

While you may not see the stories on major news networks, smartphone theft is big business and you would be surprised to learn that in 2013, 
3.1 million smartphones were reported stolen in the United States. It may also come as a surprise that nationally, just under a third of all robberies involve a smartphone of some kind.

A stolen smartphone (or tablet) represents a win-win for the thief because they have your device and in many cases, they get the information inside that device. Identity theft (and fraud) often begins from within a stolen device. Remember that ID theft is merely the stealing of your information. ID fraud occurs when the would-be thief uses your information for financial gain (loans, lines of credit, using your credit card to purchase groceries or gas).

So, ask yourself, “What if my iPhone or iPad (or computer) was stolen? Would I know what to do? Could I track and erase the data on my device?” In answering these questions, the first suggestion would be to learn about your technology and any such capabilities. Knowledge of how you can protect, track and erase your device is an essential first step. Having this knowledge will give you confidence when creating a plan in case your device is lost or stolen. In this article, you will find two scenarios where having a plan is crucial.

  • What to do when a personal device (computer/tablet/smartphone) has been stolen.
  • What to do when someone has used my identity to make a purchase or secure a loan.
    • Stolen card numbers are a more likely event and represent an easier mark for the thief. Stealing enough information about you to secure a loan is a different problem altogether.

Another suggestion would be to prepare yourself for a potentially daunting exercise in perseverance and patience. Living through either scenario is not going to be fun – but executing a well-prepared plan will make the experience much more manageable.

Scenario #1 – Your tablet/phone was lost or stolen while on vacation (or from any location). We will use an Apple product as an example.

Don’t panic – I say that because I assume you have already placed a passcode on the device. This is the FIRST line in the defense of your identity/privacy. If your iPad/iPhone or other tablet has no barrier between it and the general public – everything is fair game to the lucky thief.

Make a Call – If you suspect theft, notify the local authorities and try to retrace your steps in an effort to identify where the device went missing. Also, call your investment advisor, banker, CPA, etc to notify them of the potential theft. Many phishing emails originate from a client’s stolen device.

Track your device – Apple gives you the ability to locate your devices (iPads, Macs, iPhones) via the I encourage you to learn more about how Apple and Android help protect you and the information on your devices.

Change your passwords – Strongly consider changing any password associated with email located on your device. Other password changes could involve banking/credit card apps and shopping apps as well. Definitely change the account password for your AppleID (or Google Play if applicable).

Notify your banks and credit card companies – If you had your bank account(s) and credit card data integrated into your phone through their apps, notify them immediately and request that an alert be placed on your account. They may offer other helpful suggestions as well.

Scenario #2 – What to do when someone has used my identity to make a purchase or secure a loan.

There are fantastic resources that I would like for you to consider when thinking about your response to personal identity theft. The first link below is a more concise approach titled, “What To Do Right Away.” You might want to print this out and have it ready just in case…

The second link is “Taking Charge: What To Do When Your Identity is Stolen” and will help you build a personal recovery plan.

I encourage you to spend some time in these documents and work through them to build a greater awareness of where you have the most exposure.

Identity thieves and fraudsters gain the most from victims who are not prepared. A victim who has a plan, knows their technology and who to call can mitigate much of the risk that comes from a stolen device. Being able to quickly respond to these events will save you time, money and hopefully some sanity.
A premium is often placed on investing in financial markets, our careers and healthy lifestyles. While these are worthy endeavors, we live in a world that requires more diligence in protecting and caring for our privacy and identity. The former usually takes time to realize a return, if any. I believe the latter will most certainly benefit you not only in the short run, but in the long run as well.

Written by Jon Atchison
Information Security Coordinator for Welch Hornsby, Inc.

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