May NewsletterSubmitted by Rademacher Financial Inc. on May 24th, 2017
A Personal Note…
Rachel and I have been enjoying the spring weather. This morning’s temperature (wind chill 30) was a little shock but it’s great to see everything greening up. Rachel and I recently went hiking at the Konza Prairie Biological Station near Manhattan, KS. We were there several weeks after the Park had burned part of the prairie. The sprouts were already providing the flint hills with a lush green carpet. We even received a warm spring rainfall towards the end our hike. We would both highly recommend taking a picnic lunch and walking the prairie. The Konza Prairie Biological Station has 2, 4 and 6 mile loops.
We enjoyed having Garrett home for Spring Break. Amazingly, he wasn’t glued to his phone or computer the whole time. In early May, Rachel will be driving to Lafayette College to pick him up. I think she was going to declare the return trip as an extended Mother’s Day time for Garrett to enjoy. His first year of college has passed quickly! We look forward to having him home this summer. He hopes to secure a job using his computer skills.
Katelyn is having a fantastic time in Bologna, Italy. She definitely increased the regional traveling in April. We see Facebook posts from Rome, Madrid and Pompeii. I think it is still amazing that Katelyn attends her art history lecture about a work of art, only to go see it that weekend. She is excited to spend her summer working in Washington D.C. on an internship that has been her goal for the last four years. She will be home at the end of May for about a week before repacking and heading out to D.C.
Rachel and I attended the Raymond James National Conference at the end of April in Orlando, FL. This is a chance for both of us to fulfill our continuing education requirements, hear several great speakers and catch up with friends. After four days of Conference meetings, Rachel and I spent a couple days at Melbourne Beach, Fl. We spent our time kayaking (Phill), stand up paddle boarding (Rachel), walking along the beach and almost seeing a distant rocket launch at Cape Canaveral. Our last day we were walking on the beach, waiting to glimpse the SpaceX Falcon 9 Rocket Launch. Unfortunately, the launch was delayed until the next day with less than one minute to go. If you haven’t seen a rocket land after taking off, then watch the link I am attaching. http://spacecoastdaily.com/2017/05/watch-live-spacex-falcon-9-rocket-set-to-launch-from-kennedy-space-center-monday-morning/
Even though we didn’t get to see it, the video is fun to watch.
That's all for now.
Phillip A. Rademacher, CFP®
Healthy Consolidation and Elevated Volatility
I read Mike Gibbs’ Market update and I think it is worthy of passing along. I generally respect his opinion and thought this might be helpful. The jargon is limited. Mike Gibbs is the Managing Director of Equity Portfolio & Technical Strategy at Raymond James. In this excerpt he discusses the recent equity pullback and increasingly cautious investor sentiment.
Stocks have gone nowhere over the past 30 days as the market continues to consolidate the post‐election rally. We view the consolidation as healthy and just, as stocks had moved too rapidly on the fiscal stimulus theme. Getting major reform through Congress in a hurry is a tall order, even with one party in control.
Mixed economic data reports have coincided with the market’s realization that the political process will be less than smooth. Falling bond yields, which themselves are often a sign of weaker economic conditions, moved from 2.6% on March 13 to 2.18% on April 20. The mixed economic reports along with the backup in bond yields have likely led investors to question underlying economic strength. An increase in geopolitical uncertainty due to the Syrian bombing and tensions with North Korea is yet another catalyst for the consolidation.
As is often the case during consolidation/pullback phases, technical trends have weakened and suggest the market is vulnerable for the near term. At this point, we feel this consolidation can be patiently purchased. Granted, the risk has increased with all the moving parts around the world. But we feel the U.S. and global economies are fine. The data within the mixed headline reports suggests the same. The move in bond yields is likely related to short covering (prices up, yields down) and a move to safe assets due to the geopolitical issues, as opposed to a projection of weaker economic conditions. Any outbreak of military conflict (which we believe is remote) would cause short‐term market weakness, but with history as a guide, such periods of weakness most often create buying opportunities.
With Congress back in session, policy debate is likely to keep market volatility elevated. As healthcare reform failed once and market participants are well aware that tax reform will not happen as quickly as first anticipated, the bar has been lowered. Any positive surprise would be a bullish catalyst for the equity market. Recent reports suggest conservative and moderate Republicans are making progress on healthcare reform. Time will tell. Regardless of near-term developments, we do believe something positive will transpire politically… eventually. Sentiment polls suggest the extreme bullish sentiment has reversed and is now cautious. From a contrarian standpoint, this is bullish.
S&P 500 earnings continue to advance, with 1Q earnings growth expected to reach ~ 9%. For the full year, a similar growth rate is expected. In sum, we think the consolidation and rise in a more cautious stance is healthy and will set the table for the next market advance.
Determining the exact opportune moment to buy is a difficult task. For this reason, we believe patient accumulation is warranted during the period just ahead.
Source: FactSet, Raymond James Equity Portfolio & Technical Strategy
Opinions expressed are those of the author and are subject to change. Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or any forecasts will occur. Investing involves risks including the possible loss of capital. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision. The S&P 500 is an unmanaged index of 500 widely held stocks. Investors cannot invest directly in this index. Economic and market conditions are subject to change.
The S&P 500 is an unmanaged index of 500 widely held stocks. Investors cannot invest directly in this index. Economic and market conditions are subject to change.