Q3 2017 Market Commentary
David Y. Sun, CFA®

As we monitored North Korea’s actions during the third quarter, we also directed our attention towards two major hurricanes that devastated areas in Texas, Florida, Puerto Rico and the Caribbean Islands. The projected damage costs following the storms created significant downward pressure on the insurance sector which ultimately subsided somewhat when estimates did not meet expectations. We realize that quantifiable replacement costs are only the tip of the iceberg and anticipate possible future effects on economic indicators as a result of Hurricanes Harvey and Irma.

A negative surprise in the most recent employment report is an example of what can be attributed to the storms. As long as the reported loss of 33,000 jobs and other surprises can be tied to one-time events, the Fed should not be deterred from increasing rates in December. We believe that possible inflationary pressures driven by rebuilding efforts in the damaged areas may actually help the Fed achieve their inflation target of 2%, thereby, supporting rate increases. The only question is whether this is a short-term spike or a long-term trend?

After a few years of lackluster returns, foreign markets continue to perform exceptionally well in 2017 supported by fundamentals and more attractive valuation relative to U.S markets. Despite remaining bullish on foreign markets, our approach to international equities remains unchanged due to an understanding that GDP growth overseas is more susceptible to being derailed as compared to GDP growth in the U.S. Our exposure to domestic large cap companies ensures that we continue to participate in global consumption patterns.

Domestic equity markets remain at all-time highs driven by renewed expectations. In addition to another upward revision to the second quarter GDP, recent discussions concerning tax reform and deregulation have reemerged as catalysts for this bull market. As we monitor earnings adjustment trends, which are quite neutral at this time, we believe that new highs in U.S markets may not be supported by current fundamentals. We continue to seek positive earnings adjustments as our trigger for transitioning more into growth companies believing that such trends will coincide with a stronger GDP and provide improving fundamental support to elevated market levels.

Even though many aspects of global markets remain healthy, the possible perfect storm that lingers in our mind involves further advancement in equity markets without the support of fundamentals combined with military action involving North Korea. This scenario is a reminder as to why we continue to remain cautious moving forward. Should you have any questions pertaining to your financial plan or investment portfolio, please reach out to your consultant to discuss.

Note that our upcoming Round Table Discussion (RTD) Event on October 18th was filled very quickly. We do apologize to those who could not be added as attendees and will be considering a larger facility to accommodate the ever-growing interest in our RTDs. In lieu of this event, it is highly recommended that you attend our annual Open House Event on November 16th. Even though it will be a celebration of our 5 year anniversary, it will also be a great opportunity for you to visit our office, meet our team members and ask questions regarding topics brought up at our RTD. Please contact Leslie Tritschler at: 484-320-6300 for additional information.

 

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