The news that FBI director James Comey was fired carried with it an expectation that the equity markets would be falling hard and fast. A similar view was held when Mr. Trump was elected president. Neither case however materialized. This latest incident speaks to the larger issues going on in Washington which the market continues to ignore. Health Care Reform took longer than expected to pass the House and appears to have major roadblocks to being passed in the Senate. Tax Reform appears to be very ambitious and could have very similar problems passing both houses of Congress by year end. There are numerous political appointments that remain unfilled and Washington appears to be handcuffed in its ability to pass the reforms that were promised and expected.
Despite this, the U.S. equity markets appear ready to shrug off the politics and focus on the economics. Why? The most obvious answer is that 75% of S&P 500 Companies have beat their average earnings estimates and the blended earnings growth rate for the S&P 500 in the most recent quarter is 13.5%. If this rate holds, it will be the highest growth rate since the 3rd quarter of 2011 (Fact Set Earnings Insight 5/5/2017). Although the market is expensive when looking at 5 year and 10 year averages, the growth rate of the earnings results in buyers pushing markets higher.
A prudent decision making process suggests the ongoing need for discipline and caution. That is precisely the process we are following.
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All information contained herein is for informational purposes and should not be construed as investment advice. PWA Wealth Management, Inc. is not providing legal, tax, accounting or financial planning advice in this letter. The information in this letter has been obtained from sources believed to be reliable but the accuracy of such information cannot be guaranteed. Any index information cited is merely intended to show the general trends in certain markets in the periods indicated for comparative purposes only and is not intended to imply that PWA Wealth Management, Inc. was similar to the indices in composition or element of risk. The indices are unmanaged, not investable, have no expenses and reflect reinvestment of dividends and distributions. A variety of factors may cause an index to be an inaccurate benchmark for a particular investment strategy and may not necessarily reflect the actual investment strategies of the firm.