The primary driver of markets in the first quarter was the continuing coordinated global economic recovery which began last fall. Stocks around the world are starting to show earnings growth. For example, in the U.S. the earnings projections for the first quarter of 2017 show an increase of 9% versus a year ago which would be the highest growth rate since 2011. The stock market rallied following the November election, largely on the belief that fiscal stimulus in the form of tax cuts and a large-scale infrastructure spending package would spur growth. However, achieving these goals is certain to be more difficult than was initially assumed. Given lofty valuations in the U.S. the timing and size of fiscal policy will be a key influence on earnings growth and market movements in the coming years.
In addition, to a large degree the first quarter of 2017 marked a time of reversal for international markets in a good way for the first time in years. Reversals of some influential trends that had worked against the global markets the fourth quarter of 2016 turned in a more positive direction in the first three months of this year. Most noticeable was the broad decline in the U.S. dollar. The dollar had risen in the fourth quarter, especially after the U.S. election results as investors reasoned that the new administration’s policy would attract investment to the United States and boost the dollar. Since the opposite has happened, the currency translation has been a positive for international equities. In addition, many of the region’s economies have been showing long awaited signs of recovery.
We remain optimistic on the markets, with renewed economic growth and solid earnings this long-running bull market should continue. With global expansion in play for the first time in many years we see contributions to the portfolio’s return coming from the U.S., international developed, and emerging markets.