July NewsletterSubmitted by Rademacher Financial Inc. on August 10th, 2017
Equities Rotate in Second Quarter
Short-term Summary: Market rotation is the theme. Financials have been the beneficiary this week as the yield curve has steepened and the Fed CCAR report was favorable for the industry. Health care pulled back slightly (we believe a constructive pullback), while technology continued to be the source of most of the capital flight. Rotation is evidence that capital does not want to leave the equity market and helps bolster our opinion of limited downside. Likewise, the rotation influences our opinion of limited upside. Both outcomes are perfectly fine with us as the market (S&P 500) appears to be in need of consolidation after a 20+% run from the 2016 lows.
- The S&P 500 eeked out a small gain in June, finishing higher by 0.60%. Trading this month was dominated by the continued concerns surrounding crude oil, which was off 5.7%, and sector rotation that roiled markets. Technology, which had been the year’s best performing sector, was disproportionately impacted by the rotation, giving up 2.43% for the month. Financials, Health Care, and Energy were beneficiaries.
- In a widely anticipated move, the Fed hiked interest rates at the June meeting to a 1-1.25% range. Additionally, various comments from central bankers around the globe were interpreted by market participants as incrementally hawkish toward future policy, sparking a backup in bond yields toward the end of the month.
- The estimated U.S. earnings growth rate for the second quarter is 6.6%, according to FactSet.
- Fed officials continue to expect GDP growth of about 2.2% for 2017, but expectations for inflation and the unemployment rate were revised lower. Fed officials downplayed the recent dip in inflation figures, expecting the underlying trend to move toward the 2% goal in the quarters ahead.
- According to the U.S. Bureau of Labor Statistics, the unemployment rate fell to 4.3% in May, below what the Fed considers to be a long-term equilibrium rate. Wage inflation has been moderate.
- Internationally, the United Kingdom’s general election failed to provide the incumbent Conservative party with the mandate it sought, adding uncertainty to the UK’s withdrawal from the European Union in the early stages of negotiations. In France, the election of a pro-Europe president sparked hope of Parliament-led reform.
- During June, the president of the European Central Bank took a more positive tone in discussing the European economic backdrop.
- Investors continue to monitor geopolitical hot spots such as North Korea, Syria and Afghanistan.
|5/31/17 Close||6/30/17 Close||Change||Gain/Loss|
|Barclay's Capital Bond Composite||220.36||221.36||+28.80||+.48%|
Performance reflects price returns as of 4:30 EDT on June 30, 2017. Gain/Loss does not include dividends.
A Personal Note…
Rachel picked up Garrett at the end of his freshman year of college. It’s a 4-day round trip driving to Easton, PA. They arrived back home safely. This summer Garrett is working on the maintenance crew at the University of Kansas. Lots of bunking and un-bunking of beds, some painting and cleaning “FCU’s.” We had a little scare when Garrett was hit by a car on his bicycle in a cross walk. Luckily, he and the car were both going very slow. Regardless, cars always win, Garrett escaped unharmed with a new replacement bike from Sunflower Bike. Dad has more than a little bike jealousy. I haven’t been given the opportunity to ride his new bicycle yet. (I’m working on it.) We are enjoying some rides together while he is home this summer. Let’s just say that one of us is working super hard to stay up with the other. Either I’m more out of shape than I will admit or his new bike is super-fast. Probably a little of both
Katelyn arrived home from Bologna, Italy with many great stories and wonderful experiences. She even did well in her Art History class (definitely takes after her Mom). I think seeing the art in person after discussing it in class had a huge impact on her. Katelyn was only home for about 8 days before she left for her summer internship in Washington D.C. Her internship has been going very well – at least Dad thinks so. She was the top fund raiser of all of the interns for an event in New York City, raising over $56,000. Katelyn and the runner-up fundraiser were given the opportunity to have their picture taken with Joe Biden in appreciation of their work. Definitely a highlight of her summer!
Katelyn will be back home for the 4th of July weekend. The 4th of July is her birthday. #21 this year and she has decided to celebrate in Lawrence instead of Washington D.C. We are looking forward to seeing her. I think I will have to take her out at midnight for her first legal alcoholic drink.
Rachel and I did travel to California for a couple of days in June. We had the chance to have dinner with friends and clients in Simi Valley. It was great to have time to catch up and see their new house complete with an inspiring waterfall. We traveled on to Santa Barbara and spent 2 days walking on the beach, seeing the Sunday morning art show near the wharf, and of course great food and wine. If you are ever in Santa Barbara on a Sunday morning, you should check out the art show near the wharf. A couple of the photos in our office are from an artist we found at the art show 25 years ago. We also took the opportunity to go kayaking in the ocean and learn all about ocean life in the harbor and the surrounding area. The most interesting wildlife viewing during the kayaking to me was the two-foot star fish on a piling in the harbor.
Rachel has continued running and training for upcoming ½ marathons. I’ve been at the gym (not enough) and bike riding.
I’ll catch you next month,
Phillip A. Rademacher, CFP®