McBork Quarterly Report: 3rd Quarter 2017
McBork Quarterly Report: 3rd Quarter 2017
August 28th, 2017
I hope your summer is going well. Mine has included a new adventure. For Fathers’ Day I got a mountain bike, the first bike I’ve had since I was a child. I couldn’t wait to take it out to the expanded 35‐mile round trip North Branch Trail bike path near my house. A few weeks ago, I actually completed the entire trek. Since I haven’t been on a bike in over 25 years I felt physically and mentally good about my achievement. Now, I must admit that the North Branch Trail is not too demanding, but there are some bumps, and steep upward and downward slopes. The trail ends with a very steep incline that was hard for me to face after 34 miles of riding, but once I got over the bridge I had an adrenaline rush of accomplishment. I was surprised to find the three‐hour ride contemplative. I couldn’t help but admire the beautiful forest preserve. I also briefly found myself recalling my high school years and childhood early morning swim team practices. Most of the time however, I thought about my family, friends and work, specifically the stock market and economic landscape. As you have probably already guessed where I’m going with this thought, the bike ride could be a metaphor for the markets with their ups, downs, uncertainties and many bumps. As I rode along I kept asking myself if the market would ever stop going up. On the day of my ride the Dow hit an all‐time high for the ninth straight day in a row with volatility near all‐time lows. Despite these positive indicators, I still felt cautious because of the many unpredictable and uncertain factors that abound, particularly in Washington. The expectation that we will see major tax reform and infrastructure spending may be a factor in this bullish market, but I hope not, since I don’t believe that either will be as large as predicted by the White House. I think that there will be some tax reform, but that it won’t happen until sometime in early to mid 2018, around the mid‐term elections. Could the increase in the stock market have anything to do with the increase in interest rates? As you know, there is an inverse relationship between bond prices and interest rates. With bond .prices falling, investors may be concerned about a bond market correction and diverting more money into stocks. This is a possibility but not necessarily a certainty. Based on inflow and outflow data since the election, it appears that this is not the case. After the last U.S. presidential election, $18 billion was pulled out of the bond market anticipating the promised economic growth. That hope quickly faded as the first quarter of 2017 saw $112 billion flowing into bonds1. Over the last five weeks we have seen another $11 billion added to bonds2. 1
What about stock fundamentals? Stock earnings, revenues and sales have been pretty solid for the last couple of quarters. Bank balance sheets are much better than they were back in 2008 before the collapse and we continue to see job growth of 200K+ new jobs in three of the last four months3. Price‐to‐earnings ratios in the U.S. are on the high side, however, and might be slightly overvalued. Based on all of this information, we are telling investors to remain cautious. As I learned on my bike ride, you never know what will happen at the next turn. At mile marker 25, I came face to face with a skunk! Each biker has his own method for completing the trail. Some go really fast, and others, like me, will take their time or stop along the way to look at the scenery. No matter how your journey evolves, investing has a purpose. For most of you that includes retirement savings or home buying or maybe just financing travels and new adventures. We look forward to helping you with your journeys, whatever and wherever they may be.
Sincerely,
Gregory Bork Jr. LPL Registered Principal 1 Barron’s – “Bond Fund Flows: What Are They Telling Us”, 4/12/17 2 Lipper US Fund Flows website – period 7/5/17 through 8/2/17 3 Bureau of Labor Statistics
Investing involves risks, including the loss of principal. The economic forecasts mentioned may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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August 28th, 2017
I hope your summer is going well. Mine has included a new adventure. For Fathers’ Day I got a mountain bike, the first bike I’ve had since I was a child. I couldn’t wait to take it out to the expanded 35‐mile round trip North Branch Trail bike path near my house. A few weeks ago, I actually completed the entire trek. Since I haven’t been on a bike in over 25 years I felt physically and mentally good about my achievement. Now, I must admit that the North Branch Trail is not too demanding, but there are some bumps, and steep upward and downward slopes. The trail ends with a very steep incline that was hard for me to face after 34 miles of riding, but once I got over the bridge I had an adrenaline rush of accomplishment. I was surprised to find the three‐hour ride contemplative. I couldn’t help but admire the beautiful forest preserve. I also briefly found myself recalling my high school years and childhood early morning swim team practices. Most of the time however, I thought about my family, friends and work, specifically the stock market and economic landscape. As you have probably already guessed where I’m going with this thought, the bike ride could be a metaphor for the markets with their ups, downs, uncertainties and many bumps. As I rode along I kept asking myself if the market would ever stop going up. On the day of my ride the Dow hit an all‐time high for the ninth straight day in a row with volatility near all‐time lows. Despite these positive indicators, I still felt cautious because of the many unpredictable and uncertain factors that abound, particularly in Washington. The expectation that we will see major tax reform and infrastructure spending may be a factor in this bullish market, but I hope not, since I don’t believe that either will be as large as predicted by the White House. I think that there will be some tax reform, but that it won’t happen until sometime in early to mid 2018, around the mid‐term elections. Could the increase in the stock market have anything to do with the increase in interest rates? As you know, there is an inverse relationship between bond prices and interest rates. With bond .prices falling, investors may be concerned about a bond market correction and diverting more money into stocks. This is a possibility but not necessarily a certainty. Based on inflow and outflow data since the election, it appears that this is not the case. After the last U.S. presidential election, $18 billion was pulled out of the bond market anticipating the promised economic growth. That hope quickly faded as the first quarter of 2017 saw $112 billion flowing into bonds1. Over the last five weeks we have seen another $11 billion added to bonds2. 1
What about stock fundamentals? Stock earnings, revenues and sales have been pretty solid for the last couple of quarters. Bank balance sheets are much better than they were back in 2008 before the collapse and we continue to see job growth of 200K+ new jobs in three of the last four months3. Price‐to‐earnings ratios in the U.S. are on the high side, however, and might be slightly overvalued. Based on all of this information, we are telling investors to remain cautious. As I learned on my bike ride, you never know what will happen at the next turn. At mile marker 25, I came face to face with a skunk! Each biker has his own method for completing the trail. Some go really fast, and others, like me, will take their time or stop along the way to look at the scenery. No matter how your journey evolves, investing has a purpose. For most of you that includes retirement savings or home buying or maybe just financing travels and new adventures. We look forward to helping you with your journeys, whatever and wherever they may be.
Sincerely,
Gregory Bork Jr. LPL Registered Principal 1 Barron’s – “Bond Fund Flows: What Are They Telling Us”, 4/12/17 2 Lipper US Fund Flows website – period 7/5/17 through 8/2/17 3 Bureau of Labor Statistics
Investing involves risks, including the loss of principal. The economic forecasts mentioned may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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