Last week two members of The Joseph Group’s investment team, Travis Upton and Aaron Filbeck, were in Denver, Colorado meeting with fund managers at the Westcore Funds.  Westcore manages mutual funds and institutional accounts in a wide range of strategies including small company growth stocks, dividend paying stocks, corporate bonds, and international small company stocks.  Travis and Aaron had the opportunity to discuss markets and strategy with all of the different fund management teams and gain valuable insights for The Joseph Group’s investment committee.

Can you name the local high school that has 100% of its seniors accepted to one or more colleges?  Upper Arlington?  Bexley?  Columbus Academy?  CSG?  Nope, it’s Cristo Rey Columbus the amazing downtown Catholic school that provides a college preparatory education to under-served central Ohio youth from all faiths who come from economically challenged families.  More than half of that school’s seniors will be the first in their families to attend college!  Talk about a game changer – this school is producing pioneers – young people whose futures will be radically transformed because of this life changing high school.

Looking at performance for different areas of the U.S. stock market, small cap stocks are the weakest performers so far in 2017.  While the Morningstar Large Company Blend average is up about 4.5% year-to-date (through April 19th), the Morningstar Small Blend average is essentially flat for the same period.

With a backdrop of political headlines and strong economic data, most asset classes posted positive results for the first three months of 2017.  What we found most interesting though was the change in leadership from the end of 2016.  Areas of the markets which led the markets immediately after Trump’s election lagged in the first quarter, while areas which did not perform as well in November and December of 2016 were the market leaders in the 1st quarter of 2017.  

Last week, the U.S. Federal Reserve increased their upper target for the Federal Fund Rate (think short-term interest rates) from 0.75% to 1.00%. The increase was the second rate hike in the last three months, but only the third hike since the global financial crisis. We share with you some of our thoughts on the response to the Fed rate hike from different areas of the financial markets.

One of the biggest questions clients are asking right now is “Are stocks expensive?” And the short answer is yes – based on historical comparisons, valuations on U.S. stocks are definitely high. According to research from the Leuthold Group, as of 12/31/2016 the S&P 500 trailing price to earnings (P/E) ratio was in the 90th percentile (meaning stocks have only been more expensive 10% of the time) of valuations going back to 1920. Does that mean stock prices need to fall in order to get back to more reasonable valuations? Not necessarily…

Earlier this week we held our regular “Portfolios at Panera” and “Markets on Marconi” events where the primary discussion topic was how we were allocating portfolios as we start 2017. One of the key discussion points was our current target “overweight” to stocks within our Harvest strategy and how we are structuring that allocation across U.S. and foreign stocks, and large and small companies. A question which came up at both events was “Where do you think the stock market will finish 2017?” 

During the first three weeks of the year, the financial markets have been relatively calm.  If there is any “trend” we have observed, it is the simple fact that some areas of the market which rallied the most after the Presidential election in 2016 are now relative laggards in 2017, and areas of the market which performed the worst are now the market leaders.  The numbers are not huge – most asset class returns are between -1% and 3% so far in 2017, but today we are sharing three examples of what we are seeing.

Earlier this week, we ended our 2016 monthly series of “Portfolios at Panera” talks with a market recap event at The Joseph Group’s offices.  We reviewed each major asset category and talked about “What did we do (in portfolios in 2016)?” and “What is our view (outlook for each asset class in 2017)?”  One of the items we discussed was the underperformance of foreign stocks relative to U.S. stocks since the election and the answer was surprising.

As widely anticipated, earlier this week the Federal Reserve increased its target for short-term interest rates by 0.25% (from 0.25% to 0.50%).  The move was well telegraphed – prior to Wednesday’s meeting, the market (Fed Funds futures) were pricing in a near 100% chance the rate hike would happen. What remains uncertain though is the Fed’s path for rate hikes in 2017. What does all of this mean for bonds?  After all, when interest rates go up, bond prices go down.