Q2 2017 Market Commentary

July 11, 2017


Stock prices continued their nice advance in the second quarter. Foreign stocks again outpaced US equities.  After the 2016 US election, expectations were for the US dollar to strengthen against foreign currencies, but exactly the opposite has occurred.  That has helped our returns from foreign stocks.  The US dollar had been strengthening for about six years and periods of strength have lasted around seven years historically.  If this pattern continues, returns from foreign stocks will likely outperform domestic stocks.


Metrics used to measure the value of stocks, such as Price Earnings ratios, show non-US stocks are cheaper than domestic shares, and that has helped attract buyers for foreign stocks.  Recently, a survey of the sentiment of European businesses and consumers jumped to its highest level since before the financial crisis.


The Federal Reserve raised short-term interest rates again this quarter, as expected. The US economy keeps creating new jobs at a good pace, and inflation seems to be under control.  Normally when an economy like the US is near full employment like it is now, inflation tends to rise and the Federal Reserve will try to calm the economy by raising interest rates.  That relationship seems to lack the correlation it used to have.


 Central banks are now planning on reducing the amount of securities they hold, reversing the “Quantitative easing” policies developed over the last several years that helped keep interest rates low.  The effect of this may be higher longer-term interest rates.  But the reversal of policies may not begin for some time, so stay tuned.


It is not easy to tune out the flow of constant information, especially about finance and investments.  Acknowledgement that the future is unpredictable and prices reflect all current knowledge is a sound foundation for disciplined investing.




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