Market Monitor: Semi-Monthly Market Update – November 2017

Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.

Headlines and Highlights
  • Tax reform nears reality: The biggest overhaul to U.S. taxes since the 1980s appears likely after the Senate joined the House in passing legislation to significantly reduce corporate taxes and restructure individual rates. The legislation’s biggest impact may be a large reduction in corporate taxes but will ultimately be judged in how much it stimulates economic growth. A final bill is expected to be on President Trump’s desk by Christmas.
  • Powell sails toward confirmation as Fed chief: Jerome Powell portrayed himself as a pragmatic moderate on monetary policy in his confirmation hearing before the Senate Banking Committee, drawing no serious opposition. Powell signaled he would follow the same strategies as current chair Janet Yellen in winding down easy-money policies if confirmed. His record also suggests continuity:  He has never dissented from a single policy decision made under either Yellen or Ben Bernanke since joining the Fed in 2012.
  • Tech companies shine in 3Q earnings, power S&P 500 to strong November: Technology far outpaced all other sectors with 20 percent year-over-year earnings growth in a third-quarter earnings season that is now nearly complete. Tech stocks also helped drive the Standard & Poor’s 500 Index to its biggest monthly gain since February. The tech sector is approaching a 40 percent gain for 2017.
Selected Market Returns
market monitor Sources: Morningstar, Altair Advisers
Our Views
  • The tax overhaul should provide an additional tailwind to markets for at least the near future. Whether that stimulus is sustainable hinges on economic growth and how companies deploy the extra resources they will have as a result of the legislation.
  • The interest rate increase that the Federal Reserve is expected to approve this month is another step toward the normalization of rates that have been kept artificially low to help the economy heal from the Great Recession. We would view subsequent rate hikes as premature and a risk to markets before inflation and the economy have heated up more, however.
  • Jerome Powell’s statements since being nominated as Federal Reserve chairman on November 2ndhave only reaffirmed our view that the Fed will maintain its cautious approach to monetary policy when Janet Yellen’s term ends in February. A shift by the Fed to more aggressively raise rates and reduce its balance sheet would cause us to consider positioning client portfolios more conservatively.
  • The outlook for improving global growth in virtually every major region of the world coupled with another quarter of robust U.S. corporate earnings give us confidence a U.S. recession is unlikely in the next six months. Also, the economic excesses that led to the last two recessions (2001 and 2007-09) are largely absent.
  • Chances of at least a temporary market pullback in the coming months are elevated after more than a year of historic calm. The S&P 500 has yet to experience a decline of as much as 3 percent in 2017 in what has so far been the second-most benign year in the index’s history, trailing only 1995 for low volatility.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice.