In my 35 years as a Financial Advisor, I have never seen a U.S. President capture so much attention from the financial markets, and from almost everywhere else. The New York Times ran an article this month estimating that Donald Trump has received more attention from the media and the world than any other human being in history.
With all of the political drama and turmoil in Washington, it is a good counterpoint that America, Europe, Asia, and the emerging markets are all growing together for the first time since the Great Recession. The cover on the March 18 Economist bears the title On the up: The world economy’s surprising rise. All growing economies help every other economy.
The U.S. Federal Reserve raised rates for the second time in three months due to a strong U.S. economy. Fed rate hikes are a vote of confidence. Fears of a Chinese retraction have receded; capital expenditure in Japan is at a three-year high; the euro-zone has been accelerating since 2015, and the euro-zone unemployment is at its lowest since 2009. Export growth in South Korea is up more than 20%, and the U.S. economy has added new jobs for 77 months in a row.
The stability of the U.S. market the last week in March is significant after the drop on Friday, March 24 due to the failure of the Republican Party to work together. Stock market fundamentals are very strong with corporate earnings on a solid growth path. The message from March for investors is that the U.S. and global economies are much, much bigger than President Trump. They can stand on their own.
In our more conservative Stable Growth and Cash Reserves strategies, we adjusted our fixed income models for more rate hikes this year by increasing our allocation to short-term bond funds. This will reduce interest rate risk. With 10-year U.S. Treasury yields hovering at 2.4%, the bond market has held up well this year. Ironically, market interest rates have fallen since the Fed March increase. For conservative investors, bonds are in your portfolio for the purpose of stability and reducing risk. Don’t react to politics by abandoning your long-term strategy and plan. This is how investors lose money. Invest, don’t trade.
Lastly, our custodian Charles Schwab has announced that they will be lowering their trading fees. This reduction will directly benefit client accounts. Schwab continues to serve as an effective partner, providing some of the lowest trading fees in the industry. We always welcome your calls.
Jim Bell, CFP®
President, Chief Investment Officer