The third quarter of 2017 again posted positive returns for domestic, European and emerging market equities. Global growth is back for the first time in a decade, with 45 economies monitored by the Organization for Economic Cooperation and Development (OECD) in economic expansion. As Jim Paulsen, Chief Investment Strategist of the Leuthold Group, has stated we are in a sweet spot with low inflation, low interest rates, and higher earnings all resulting in higher valuations and rising stock markets around the world. In addition, for the first time in eight years we have a President who is pro-business and whose agenda includes increased fiscal spending, less regulation and lower corporate taxes which if enacted could result in even higher earnings.
However, we are watching the Federal Reserve’s actions as they have started to slowly normalize monetary policy by gradually lifting interest rates. If inflation increases and the Federal Reserve takes on a more aggressive role in raising rates, it could provide a problem for U.S. equities.
We have currently positioned our portfolios to reflect a slight over-weight in both the international and emerging markets versus the U.S. domestic market. As for bonds, we are positioning the portfolios for a gradual rise in interest rates thus, we remain with shorter maturities on the yield curve.