Most major stock indices turned in a 5%+ first quarter. Bond prices bounced some off their end of year lows, showing a 1%-ish total return for the quarter in the major bond indices.
Global economies continued to strengthen in Q1 including Europe, Japan and China. Here at home CEO expressed their enthusiasm for regulatory and tax relief from the new administration and congress by announcing new investments in their businesses. In Europe business trends were positive and anti Euro political sentiment seemed to diminish. Bank of Japan raised its growth outlook for 2017 as did China.
So, now what? Economies continue to improve, wages are rising in the U.S. and other major economies, and political environments are improving for business. From a market perspective stock prices seem to want to take a rest, but are holding above important support levels.
With stock valuations at the upper end of their historical range, the Fed once again raising short term interest rates, and a heightened risk of an overseas confrontation, a bit of caution seems prudent. However, evidence of an accelerating economy could start stocks moving up again as bonds still aren’t likely competition for equities.
Here at Marin Wealth Advisors we are emphasizing the importance of diversifying slightly away from the most extended market sectors and into lagging sectors. As well, many investors have become under invested in foreign markets, and we’re adding to those positions. In bonds we continue to shorten maturities, as we want to mitigate rising interest rate risk. We’re also looking for opportunities in other income investments away from bonds.