“Gimme Some Truth”

This week’s episode of “Gimme Some Truth” is called “The ABCs (and sometimes I’s and R’s) of Mutual Funds” – Clint, Nate & Kevin dive into the often-confusing alphabet soup that is mutual funds. You can check out our new episode on iTunes and SoundCloud – don’t forget to subscribe!

Where Were We Last Week?

Clint and Nate were at a conference last week in Chicago, listening to a variety of speakers.  Included in the speakers were economists and consultants that have experience in Washington D.C. policy.  Their consensus is that there is a strong likelihood that we will see healthcare and tax reform. However, it may take a bit longer than expected to get the parties together to get anything done.  There did not appear to be a lot of hope that we were going to see bipartisan support for any meaningful legislation. The infrastructure bill was not something that was extremely likely in 2017. 2018 may be a stretch as well if the Freedom Caucus rejects the spending and cannot come up with Democratic support.

Is the Market Overvalued?

We’re commonly hearing a question from our clients: is the market overvalued due to the fact that we are setting record high? From our perspective, the number on the stock market is unimportant.  Our “scoreboard” is the projected future earnings of companies.  The first quarter earnings for 2017 have come out, and they are strong so far.  Some of the metrics we would look at suggest that the market might be slightly overvalued but far from “bubble” territory. Morningstar has the number at 1.03 as of today with 1.00 being “fairly valued”. The market has additional room to grow if future earnings continue to expand.  This market is also mostly void of unbridled exuberance.  The two large market crashes since 2000 were marked with a frothy excitement that is currently not present.  This bull market has included a healthy amount of skepticism since the recovery began in 2009.  

What This Means:

There are reasons to optimistic about higher highs in the markets.  There are many positive factors currently in the economy. One of the biggest being home sales jumping 9% this March compared to March of 2016 and unemployment rate of 4.7% as of February. We agree that a measured dose of skepticism is never a bad idea.  That said, the closing number of the S&P 500, the Russell 2000 or any other index for that matter on any given day is just that – a number.