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Fourth Quarter 2016 Economic & Market Review Now Available

by Scott Smith, CFA

Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Fourth Quarter of 2016. The excerpt is posted here for the benefit of our blog subscribers.

US Stocks Jump as Markets Digest Trump’s Surprise Presidential Victory 

US stock markets finished 2016 on a strong note, rising 3.8% for the quarter and 12.0% for the year, as measured by the S&P 500 stock index. Donald Trump’s surprise win proved to be the defining event of the quarter. Markets surged on the prospect of increased infrastructure spending, lower personal and corporate tax rates, and relaxed regulatory requirements. Investors are saying that taken together, these measures will accelerate US economic growth.

Financial stocks surged on the quarter, rising 21.1% as measured by the S&P Financial Select Sector index, amid rising interest rates and expectations of a friendlier regulatory environment. Banks’ lending profits stand to benefit should the yield curve continue to normalize.

Mid and small cap stocks capped a remarkable year that saw the Wilshire 4500 index rise 6.5% on the quarter and 18.5% for the year. The strong performance comes on the heels of two consecutive years (2014-2015) in which large-cap stocks soundly outperformed mid and small caps, illustrating the benefits of broad diversification across all sectors and capitalizations of the US stock market.

Market volatility was modestly higher in the fourth quarter, with the VIX volatility index reaching a high of 23 just prior to the November elections, before falling back to more subdued levels (low teens) at year-end.

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Three Weeks After the Election—Taking Stock

by The Gould Asset Management Team

The US election was about three weeks ago and financial markets have wasted no time adjusting, making dramatic moves and confounding many along the way. While it will take at least several months to get a firmer handle on the investment implications of this election, we thought this would be a good moment for taking stock.

We will begin by reviewing the “early returns” in various financial markets—what markets have actually done from the market close on November 8 through November 30. Next we will consider the probable causes of the market’s recent movements. Finally, we will offer some cautionary thoughts—not to discourage anyone, but simply to keep ourselves well grounded as we look forward.

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Post-Election Investment Counsel

by The Gould Asset Management Team

Stock markets worldwide plunged overnight in the wake of the surprise election of Donald Trump. Just as quickly, markets have snapped back this morning and as this is written, the US stock market is well above yesterday’s closing level.

Without question, Mr. Trump’s election introduces uncertainty across a broad swath of economic affairs, arguably widening the range of potential outcomes investors must consider. Nobody, including us, can say with authority what a Trump administration will mean for the economy and financial markets.

Faced with this, some investors might wonder whether to move to the sidelines and take a wait-and-see approach. We would caution against this. History teaches us that a long-term investment plan, carefully designed and consistently implemented, is the surest port in the storm.
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Third Quarter 2016 Economic and Market Review Now Available

by The Gould Asset Management Team

Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Third Quarter of 2016. The excerpt is posted here for the benefit of our blog subscribers.

US Economy Maintains Steady Course
The US remained on steady footing, though a string of mixed data revealed both strengths and weaknesses in different segments of the economy.

New revisions show GDP climbed a modest 1.4% annualized in Q2, driven by growing exports and expanded business investing. Early estimates place Q3 GDP gains at roughly 2.5%—a welcome boost if they pan out.

Household spending made a decent, if not dazzling, showing, increasing at an annualized rate of 2.7% this quarter despite a flat August. This marked a dip from last quarter’s powerful upswing, however, when consumption surged 4.3% annualized. Meanwhile, consumer confidence continues its steady rise. More Americans say it’s become easier to find jobs, and a widening number report improving incomes.

The economy continued to add jobs at a healthy clip. Employers created 151,000 new positions in August and 156,000 in September—lower than projected, but still in line with an encouraging trend that saw July add 255,000 to payrolls. Jobless claims dipped to a new post-recession low, reflecting minimal layoffs and a sturdy labor market.

Sales of new homes accelerated strongly while existing home sales stagnated, making for an unbalanced quarter for housing. Manufacturing also struggled with uneven results. In August the ISM manufacturing index slipped to 49.4, but quickly bounced back to 51.5 in September, reviving the momentum that manufacturers enjoyed earlier this year.

The U.S. presidential race entered its endgame.In a campaign marked by unusually high volatility in poll results, Clinton has established a strong edge over Trump as of mid-October. Markets may turn increasing focus over the next three weeks to House and Senate outcomes, with implications for tax policy.

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