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Economic & Market Outlook  

March 2018

After a remarkable 15-consecutive-month increase for the S&P 500, the trend was finally broken in February as the index was down 3.69 percent.

A record 78% of S&P 500 companies beat analysts’ revenue estimates for the fourth quarter of 2017, the highest beat percentage since 2008.

One factor that has helped stocks recover some of the correction has been a stream of strong corporate earnings results. Overall earnings growth is nearly 15%, which would make it the best quarter since 2011.

While U.S. stocks are not cheap, the S&P 500 forward P/E ratio is near the 2017 lows due to strong revised future earnings forecasts aided by tax cuts and infrastructure spending legislation.

From a fundamental standpoint, a synchronized global growth backdrop combined with accommodative monetary policies should provide support for global equities.

After a long period of calm, a surge in volatility was attributed to expectations for higher interest rates due to worries of rising wage inflation.

Rates have been on the rise because of the strengthening economy and a spending splurge by the federal government that will force it to borrow more money.

While inflation has been creeping up slowly, investors have faced a rocky adjustment to the idea that the bigger risk around inflation is now that it's too high, not that it's too low. The Federal Reserve has been challenged to tweak its message to investors.

If inflation takes off, it can rise quickly, which is why the Fed doesn't want to find itself in the position of having to raise rates in response. But there are few signs we're at that stage yet.

Chairman Powell maintained the Fed would keep to its plan of raising interest rates three times. His comments carried hawkish undertones. Federal-funds futures recently moved higher to a 33% chance that the Fed would raise short-term interest rates at least four times in 2018.

We increased our international equity exposure based on improving growth prospects, attractive valuations and a weaker U.S. dollar. Foreign equity returns have decoupled from the U.S. markets, providing portfolios added diversification and return.

  • This information has been compiled using data and other statements of fact derived from sources which we believe to be accurate and reliable. However, such data and other statements of fact have not been verified by us, and we do not make any representations as to their accuracy or completeness. Any opinion expressed herein reflects our judgment at this date and is subject to change.

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