March – Here’s To Your Wealth

The U.S. Stock Market performance soared from the November elections until the end of February. And to borrow from a well-known phrase, March’s performance came in like a lion and is going out like a lamb. The good news is that although the Dow Jones Industrial Average has fallen over 500 points as of March 28th, on a percentage basis, because of the markets lofty level, this decline is only about 2.5%.[1]

Given the growing uncertainty about tax and infrastructure legislation, elevated stock market valuations, as well as daily tweet risk coming out of Washington, market volatility should be expected by investors. However, until March 21st, the stock market had gone over 100 days without a 1% decline, and seemed to only want to price in the good news coming out of the “Trump growth agenda”.[2] With some recent legislative stumbles we now see some of that earlier stock momentum slowing. Washington will need to deliver on the agenda Wall Street is hoping for or the post-election gains may seem unjustified.

Perhaps surprisingly, we see the legislative roadblocks not just coming from the Democrats, but from divisions within the Republican ranks. We saw this lack of unity with the effort to repeal and replace The Affordable Care and Patient Protection Act. Now there are concerns that consensus may not be able to be reached regarding tax reform and infrastructure spending – two aspects to the Trump agenda that have been nearly universally praised by Wall Street. On the one hand, most Republicans want to lower personal and corporate tax rates, but there are those in the “Freedom Caucus” who are also concerned about the ballooning budget deficit and more spending. For some conservatives, cutting taxes must be accompanied by spending cuts, but if entitlements like Social Security and Medicare are off limits, there is little else to cut – especially since President Trump wants to increase – not cut – defense spending. Whatever your personal feelings are regarding lower tax rates, at this point, the failure of Congress and the President to reach a robust tax deal represents one of the biggest risks to stock prices. For more on this topic, click here to see my discussion with Trish Regan on “The Intelligence Report”, March 9th on Fox Business Network.

As I have written before, the biggest driver to stock prices is earnings, and corporate earnings have been strengthening. In addition to stronger corporate earnings, the U.S. continues to enjoy low unemployment, an uptick in personal incomes, continued low oil prices, and relatively low U.S. interest rate. All of these factors could spell optimism for the U.S. equity market. Interim market declines may also present opportunities for investors with cash on the sidelines – provided that the growth story continues and we see some tax reform and infrastructure spending out of Capitol Hill.

Globally, we still see continued easing by the Bank of Japan and the European Central Bank. And while there are major structural problems to the European economy, there are signs that economic growth may finally be at least limping forward. If political turmoil doesn’t derail their nascent economic recovery, European stocks may also finally move upward after years of underperformance.

To summarize, we continue to believe the bull market in U.S. stocks that started over 8 years ago remains intact. Elevated valuations are concern at these levels, there is geopolitical risk, and potential gridlock in Washington. But the earnings outlook remains robust. Central Banks, including our own Federal Reserve, are being very careful to create a recession, and barring an unforeseen black swan type event, we don’t see a recession in 2017. Increasingly, our best advice is to not get too emotional about politics or your portfolio, and to avoid watching cable news – unless of course I am a guest.

Quote of the Day:

“A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform.”-Russell B. Long

1 Marketwatch.com  Dow Jones Industrial Average http://marketwatch.com (March 28, 2017­)

2 Mark DeCambre , Marketwatch.com http://marketwatch.com (March 20, 2017).

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About Mark Avallone, MBA, CFP®, CRPS®, AIF®

Mark Avallone is the author of Countdown To Financial Freedom, and founder and President of Potomac Wealth Advisors, LLC a financial advisory firm serving clients through holistic financial planning and wealth management. Avallone writes on a variety of financial topics, and his contributions have appeared in the Wall Street Journal as well as in Forbes where he is a regular contributor. He is a frequent guest on CNBC, the Fox Business Network, and local NBC, CBS, and Fox affiliates in Washington, DC. His insights have also been published in USA Today, U.S. News & World Report, The Washington Post, and other leading publications   Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through Potomac Wealth Advisors, LLC or CES Insurance Agency. www.finra.org and www.sipc.com This communication is strictly intended for individuals residing in the states of AZ, CA, CO, DE, DC, FL, GA, MD, MA, MO, NJ, NM, NY, NC, OR, PA, SC, TX, VT, VA. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services. Potomac Wealth Advisors, LLC, 15245 Shady Grove Rd., Ste 410, Rockville, MD 20850 301-279-2221

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