The path of humanity is clearly, throughout the decades, progress. Despite this, we still harbor investment fears and doubts. In the investment world, our doubts are exasperated by having lived through a dramatic market decline in 2008. But inevitably, and as we correctly predicted in our March 6, 2009 client letter, the march towards progress & greater wealth creation continues unabated. Now, as we review our Feb 11, 2016 client letter prediction of that cycle’s low, we look back and see tremendous wealth creation has truly occurred.
From our market low prediction through April 26, 2017, Spectrum clients have enjoyed a median return, after all expenses, of 33.62% compared to the S& P 500’s return of 24.75% As you are aware, we also correctly forecast the election result in a Sept 16, 2016 letter, and, since the election on Nov 8 our clients median return has been 32.93%, after all expenses, compared to the S&P 500 index return of 11.59%*. Year to date for 2017, our median client has enjoyed a net 12.12% return, compared to the S&P 500 Index return of 6.64%. This is a dramatic & striking out-performance by Spectrum. From the market’s last interim high on March 1, we saw nearly seven weeks of slow market decline. That seven weeks, in our opinion, was the one step backwards following the two steps of progress! This is how markets work. They ebb, they flow, but the out-performance that Spectrum has achieved on your behalf has been generated by our investment selection and proactive allocation to various sectors. Our investment methodology incorporates many tools to help us achieve the out-performance we have proven capable of – over both short & very long periods of time. As we end the fourth month of 2017, I want to give you some reasonable expectations for the rest of this year, and the years ahead.
First Quarter Earnings
You might be aware that in the last couple of weeks, corporate earnings reports have been rolling in for the first quarter of 2017. At this point, 51% of those reports beat sales and earnings expectations according to Bank of America Merrill Lynch. 68% of the 95 reporting companies have beaten expectations on their earnings, and 64% also delivered better than expected sales. Financials & industrials, where we have significantly over-weighted your portfolio, led the reported results.
More Good News
Business confidence continues to rise. Optimism, measured by consumer sentiment, is at record levels, and if you parse all of these company’s earnings reports, you see the positive tone, both in the written word and on the earnings calls, from CEO’s and CFO’s. Jobs continue to flow back to the United States from overseas, led by the policies of the Trump administration and the expectation of more rational regulations (ie: less is more). A significant impending cut in the corporate tax rate from a minimum of 35% to approximately 15% will likely occur soon. With the impending passage of health care reform, (which will save our nation and its taxpayers trillions of dollars over the next ten years), and a renewed confidence around the globe in the reasserted leadership of America in world affairs, freedom and liberty will prosper which has always resulted in higher economic growth!
Because we lived through 2008, in the back of your mind, there may still be a vague fear that it can happen again. And theoretically, it could. But we rely on historical evidence and economic history to make our investment decisions and economic history tells us that in an event like that occurs approximately once every 70 years. We have seen the outcome that is truly likely to occur economically in reviewing the Carter to Reagan administration transition. President Trump is utilizing the same policy tools that Reagan used and that pulled our nation out of an economic & leadership quagmire and resulted in the longest, and largest, economic expansion in our country’s history. President Trump is utilizing the Reagan policy tools of reducing unnecessary job killing regulation, reducing the tax burden on hard working Americans, (allowing them to keep more of the money they earn), and reasserting America leadership around the globe. Once again, these tools should have the same inevitable positive financial outcome in my view. These policies will lead to an economic expansion that few fully appreciate and that is likely, we believe, to last for many more years.
I want to say this clearly. We believe that we have begun what may be the greatest period of wealth creation in our country’s history. Despite the press and liberal “resistance” to the polices of our president, their passage is nearly inevitable. Their effects on your financial future are highly positive, and should lead to long-term well above average investment returns in your portfolio! ‘Nuff said.
Kelly Buckley, MBA, CFP®
Managing Director for Asset Management