Q4 2017 - Market Summary

Q4 2017 – January 4

2017:

37.50% - U.S. momentum stocks                                           7.77% - Global high yield bonds

36.55% - Emerging markets stocks                                        4.66% - Core bonds

28.05% - International core stocks                                         2.14% - Core municipal bonds

21.73% - U.S. large stocks

  9.59% - U.S. small value stocks

Through Q3 of 2017:

27.71% - U.S. momentum stocks                                           8.35% - Global high yield bonds

26.78% - Emerging markets stocks                                        3.39% - Core bonds

22.31% - International core stocks                                         2.82% - Core municipal bonds

14.19% - U.S. large stocks

  4.87% - U.S. small value stocks

Returns in Q4 would be considered solid annual returns in many years.

As changes to U.S. tax law became more clear, and likely, the market advanced through the quarter only pausing for a week-and-a-half in the middle of November.

The corporate tax rate was moved from 35% to 21%, a huge move but one that puts U.S. corporations on more equal footing with their international counterparts. Over the last many years U.S. companies have been figuring out ways to move operations overseas to take advantage of those lower tax rates. A part of this phenomenon has kept at least a couple $ trillion in U.S. corporate profits earned overseas stuck overseas because to bring it back would have triggered a big tax bill. The new tax law moves U.S. corporate rates lower and in line with the rest of the world; in return companies are compelled to repatriate  cash held overseas, in installments, over the next few years. These repatriated funds could be used by companies to create jobs and wealth, and provide needed products and services, benefiting American workers, consumers, and investors.

On the whole, for individuals, taxes will go down. Depending on how much you make, and where you live you may pay more in tax.

With an increase in the standard deduction to $12,000 most people (mostly middle class) who will take the standard deduction will experience a decrease in the amount of tax they pay.

There are certainly positives to be taken from the tax changes and taxes, by definition, are friction to the economic system. In my mind there’s a theoretical equilibrium amount of tax that could be collected, and a commensurate size of government, that would allow for needed services and economic growth. Without growth we can’t pay for the things we need but what constitutes need is certainly up for debate and our political process allows for special interest dealing.

The stock market certainly likes the changes, at least on principal, and we’ve been long due for better economic growth. Better growth will cause more profits and more income to be taxed.

Speaking of the stock market, it will certainly pull back at some point which is normal and healthy. A 10% downturn can feel even more painful if it’s coming off of the biggest personal wealth number you’ve ever seen but if current global economic systems stay intact, it’s extremely likely markets will continue generate wealth for us over the years.

As always, we truly appreciate the confidence you’ve place in us with your assets and I want you to feel free to call at any time regarding your portfolio or any personal financial matter.

Sincerely,

Erik S. Wolfers, MBA, CFP^®