Mid-Quarter Commentary

May 15, 2017

The market continues to be laser focused on the continuous political developments both domestically and abroad. To the relief of investors around the world, French centrist candidate Emanuel Macron defeated Eurosceptic Marine LePen to be the next President of France. The election of Macron significantly lessens the chance of France leaving the European Union in the same fashion that Great Britain did this past June. After failing to get enough votes in March, the House of Representatives finally repealed and replaced Obamacare on May 4th, which now must be approved the Senate. More disappointing for investors are the various investigations surrounding the Trump Administration’s potential dealings with Russia and the fallout from the firing of FBI Director James Comey have pushed investors to be more risk averse over the last week. The constant drama surrounding the Trump Administration has caused investors to revise the potential economic prospects of Trump Administration downward, in turn lowering interest rates and stalling equity prices. Despite the current volatile and unpredictable nature of Washington D.C., we still strongly believe that the Federal Reserve will once again raise their benchmark interest rate during their June 14th meeting. As of May 15th, Fed Funds futures contracts are pricing in a 97.5% chance of an interest rate hike during June. According to our analysis the U.S. Economy is on a solid footing. With 211k jobs being created during the month of April the strength of the labor market also continues to impress us. Earnings for the first quarter have been remarkable; with 93% of S&P 500 firms having reported, 79% have beaten earnings estimates, while 64% have exceeded sales estimates. We believe that if equities continue to perform well, and as valuations reach a level that we believe to be fair, we will consider an asset allocation change.

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