Believe it or not, but the first quarter of 2017 is already over! 2016 was marked by tumultuous politics, but Trump’s surprise victory resulted in a market surge that has continued into this year. In fact, the economy has been improving to the point where the Federal Reserve felt confident enough to recently increase interest rates for the second time in three months. Let’s look at how the rest of the economy is faring in 2017 so far.
There is always plenty of interest and concern regarding the markets, because many of our portfolios are directly impacted by its ups and downs. Here is a look at what the first three months of this year has brought:
Looking at the big picture, U.S. stocks finished up 5% in the first quarter! Despite a slight dip at the end of March, markets have continued to ride the wave of optimism that sprang from Donald Trump’s surprise victory in November, commonly called the “Trump Bump.” The Dow has continued to set record highs since the election, and on January 25, just days after the inauguration, it finally surpassed 20,000. On March 1st, the morning after President Trump’s widely publicized speech to Congress, it shot up over 21,000. It has since fallen back down below 21,000.
Other market segments, such as technology and healthcare, saw substantial growth as well, with only the energy sector showing declines. Globally, European Union countries who have adopted the Euro saw manufacturing readings reach six-year highs. The European markets also soared after the Dutch Prime Minister’s defeat of his populist opponent and the U.S. Fed’s more dovish approach to interest rate hikes announced in March.
The markets are continuously fluctuating, and these up and down movements can create risk and instability, known as volatility. Uncertainty usually creates volatility in markets, and our new president surely breeds uncertainty! It was surprising then, that volatility not only dropped leading up to January’s inauguration, but the S&P 500 actually saw less volatility than at the previous two presidents’ inaugurations.
Europe is in the throes of their Brexit discussions and is experiencing volatility as a result. We can see this by watching the roller coaster the British pound is currently on. For example, the pound saw considerable gains in January, but lost value quickly after due to Scotland threatening a new independence referendum.
Overall for 2016, the economy performed at its worst since 2011, growing a mere 1.6%. Many are looking to President Trump to boost the economy in 2017 with his proposed tax cuts, infrastructure spending, and deregulation
Things are stable on the employment front. Unemployment is still low, sitting at 4.7% in February 2017, and labor force participation rates inched up to 63%. Employment in the private sector grew by a record 298,000 jobs in February. Of those jobs, 106,000 were added in construction and manufacturing, perhaps in anticipation of President Trump’s economic stimulus.
The S&P 500, the most commonly used benchmark to determine how the economy is doing as a whole, grew 9.1%, the highest year-over-year growth since 2011.
The Federal Reserve announced in March that it would raise rates .25% to a range of .75%-1%. They are planning two more rate hikes this year since the economy seems to be heading in the right direction with inflation reaching 2.2% and a healthy job market.
What Does This Mean For You?
The economy continues to chug along in the right direction, but a lot hinges on the actions of President Trump and the results of other global elections. It is important to remember that we are now in the second longest bull market in U.S. history, and it cannot go on forever. Any number of things could trigger a market downturn, so it is important for you to prepare yourselves emotionally and stay focused on your long-term plan.
In times like these, it is vital to avoid chasing returns and instead depend upon a broadly diversified portfolio that accounts for your goals, time horizon, and risk tolerance. No one knows what the future will hold, but with a solid financial plan based on well thought out investments, you can be prepared no matter what happens. If you think your portfolio needs a second look to account for the current economic climate, contact me by emailing [email protected] or calling (301) 461-8492.
Debbie Gallant is a financial advisor and the founder of Gallant Financial Planning, a fee-only Registered Investment Advisor firm. Along more than two decades of experience, she has advanced training and education in holistic and comprehensive financial planning, having received the Chartered Financial Consultant®, Registered Life Planner, Chartered Retirement Planning Counselor®, and CERTIFIED FINANCIAL PLANNER™ designations. Specializing in client-centered financial life planning, she works closely with her clients to develop personalized strategies that address both short-term and long-term needs. Based in Rockville, Maryland, she works with clients throughout Maryland and the metro Washington D.C. area as well as those who have moved to warmer climates. To learn more, visit www.gallantfinancialplanning.com or connect with her on LinkedIn.