The first Quarter 2017 saw a continuation of the stock market rally that began last year. Our stocks exceeded the nearly 6% return of the broad market averages.
Investors are counting on the Trump administration’s announced initiatives to lower taxes, cut regulations and stimulate job growth. We are optimistic that with patience, some of the above fiscal stimulus will occur within the calendar year.
It may be hyperbole, but one could argue that there exists “a shortage of US stocks”. For example, the Wilshire 5000 Market Index which formerly contained 5,000 stocks now has approximately 3,722 companies. Directionally, fewer stocks are a function of mergers and acquisitions, private equity purchases and stock buy backs.
Other interesting statistics: $400 billion of corporate stock buy backs have occurred over the past several months and currently US corporations have about $1.5 trillion cash on their balance sheets. The question to ponder: will this cash move in the direction of capital spending? This would be far more positive to the economy and to earnings versus companies continuing to buy their own stock.
Overall, stock market valuations are not cheap. However, we believe that foregoing reasons will dampen risk in the coming months and we are confident in our proven ability to pick stocks with lower than average valuations yet with attractive prospects.