Terry Sawchuk Founder & Chairman
(This was written prior to President Trumps announcement that the US will exit the Paris Climate Accord). Memorial Day signifies the unofficial start of summer in Michigan. To many of us this means summer vacations, golf, fishing, riding (motorized and pedal power), gardening and general outdoor activities. In the financial markets the summer is often a period with lower trading volumes and weaker performance. Since 1950 the Dow Jones Industrial Average returned on average .3% over the period of May to October compared to a 7.5% average return over the period of November to April. Source: investopedia A strategy known as “stay away in May” can be used to sell your investments in May and buy them back in November. It is important to note that these are the average returns and there are times when employing this strategy does not provide the desired results. This strategy will also create additional trading costs and possibly tax ramifications. Terry and I have used this strategy in years past. This, however, is not one of those years.
The chart noted above is a 1 year look back of the S&P 500 index. The chart shows that the markets had been moving sideways prior to the Presidential election this past November. The markets moved higher over the next few months (through March 1, 2017). Since March 1st the markets have been moving in a sideways trading range. I think the reasons for these 2 trading bands can be traced directly back to the election. I think it is safe to say that regardless of your political affiliation we are all a little tired of constant news coverage. There is not one channel you can turn to that doesn’t have their opinion of what is happening. However, the markets don’t seem to care as much as we do. Here is the proof. After the election the markets viewed a Trump presidency as good for company profits due to less red tape. The market also felt that Trump would be good for the American worker thus being good for the economy. That wave of enthusiasm worked until March 1st pushing the markets to new highs. The markets have been moving sideways since that time as they are now in a wait and see mode. Can the President deliver? Will a healthcare bill be passed that saves money for people? Will jobs be saved and grown? Will a tax cut be made effective? The markets will move higher from here if he is successful in getting these things done without hurting something else. If he is unsuccessful you can expect the markets to return to pre-election levels.
It is interesting to note that foreign stocks from both developed nations and emerging markets have lagged US since the global financial crisis and appear to offer potentially better value than the U.S. It’s not to say that the U.S. won’t continue to rise, as we believe it will. We do think however, that U.S. large companies are running at or above their long-term trend line while large company stocks from developed foreign countries, and to a slightly lesser degree emerging markets are running well below their long-term trend lines and offer a better risk/return profile. Our models have had and will continue to maintain both foreign and domestic holdings and we will evaluate their overall role in our asset allocation models on an ongoing basis.
While we are hard at work analyzing the opportunities and risks in the market we hope you are out enjoying your summer activities.
As always, we appreciate your continued trust and confidence.
Visit www.sawchukwealth.com to review past issues of The Marketview.
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