March 2017 Insight

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Adam E Bray CFP®
Chief Investment Officer

The market narrative that has dominated the news cycle since November has been the election. Fed Chief Janet Yellen summed it up well during her semiannual testimony before two Congressional committees when she was asked what she believes is driving stocks higher.

“I think market participants likely are anticipating shifts in fiscal policy (tax cuts, infrastructure spending) that will stimulate (economic) growth and perhaps raise earnings,” Yellen opined.

One theme here is that earnings and the expectation of where earnings are going are the biggest influence over the long-term direction of stocks. Investors who are pricing in faster economic growth are also pricing in an acceleration in profit growth.

As the month came to a close, markets were clamoring for specifics on fiscal policy, not just generalities. There were concerns that we might see a selloff if Trump’s February 28 address to Congress didn’t offer details. It was light on detailed-policy prescriptions, but markets didn’t seem to care. Shares reacted in a similar fashion, soaring to new highs on March 1. We’ll eventually see volatility return. But forecasters who have been dismissing the rally have been finding themselves on the losing side.

Why? Predicting short-term market moves is next to impossible. It’s why we have always taken a long-term view and recommend investment plans we believe will help you reach your financial goals with the least amount of risk.

Table 1: Key Index Returns 

Dow Jones Industrial Average +4.8 +5.3 +8.4
NASDAQ Composite +3.8 +8.2 +10.6
S&P 500 Index +3.7 +5.6 +8.3
Russell 2000 Index +1.8 +2.2 +5.4
MSCI World Ex-USA** +.09 +3.9 -3.2
MSCI Emerging Markets** +3.0 +8.6 -1.1
Bloomberg Barclays US Aggregate Bond TR +.07 +.09 +2.6

Source: Wall Street Journal,, CNBC, Morningstar; MTD returns: January 31, 2017 - February 28, 2017; YTD returns: December 30, 2016 - February 28, 2017; *Annualized; **In US Dollars

The Buffett Bet

The difficulty in market timing might best be explained by a $1-million-dollar bet between legendary investor Warren Buffett and Protégé Partners.

Buffett detailed in his latest letter to shareholders how he wagered that between 2007 and 2017 a simple S&P 500 fund could outperform investment gurus who actively hope to time and outperform the index.

Proceeds would go to the winner’s chosen charity.

With one year left, the S&P 500 fund is up 85%, according to Buffett, while the five hedge funds chosen by Protégé are up just 22% on average. Put simply, fund managers who are heavily incented to outperform failed miserably.

For most of you, I would never recommend you put all of your investments in stocks. It’s simply too aggressive, could subject you to unreasonable risk and sleepless nights in a severe downturn, and doesn’t provide the necessary level of income many of you need.

But this is a vivid, real-life lesson that illustrates how even the smartest money managers, employing complex mathematical models, struggle to successfully time the market.

Thank you for reading; I hope you’ve found this review to be educational. If you have any questions or would like to discuss any matters, please feel free to give me a call.

Best Regards,

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Adam E Bray CFP®
Chief Investment Officer
The Bishoff Financial Group

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These are the opinions of Chief Investment Officer Adam E Bray CFP® and not necessarily those of Cambridge. The views expressed herein are for informational purposes only and should not be construed or acted upon as individualized investment advice. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results. Material discussed is meant for general illustration and/or informational purposes only, and is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources beleived to be reliable, please note that individual situations may vary. Therefore, the information should be relied upon when coordinated with individual professional advice.