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September 29, 2017

As we write, the global stock market continues to perform significantly ahead of annual gains going back to 2013.

Foreign equities nearly kept up with the rocket speed of US stocks in that year. The exception then was emerging markets, which fell asleep for just the second time since this bull market began in March of 2009. Only this time, emerging markets continued to slide through the next two years, finally snapping back in 2016. Before the snap, though, nearly all of Foreign stocks fell into a slumber lasting all the way through to the end of last year.

Throughout this year, US and Foreign stocks have been competing constantly. Foreign stocks have stayed ahead year-to-date, with much broader gains. US markets have witnessed a surge among Growth and Large caps generally—while Small Value stocks have cooled off from last year’s stellar gains. Should both US and Foreign markets continue to hold these gains through next week’s month and quarter ends, the substantial, steady grind could bode quite well for year-end expectations.

Another positive element we observe is the political environment which, although frustrating for voters and policy pundits, plays well to markets that tend to prefer ‘grid-lock’ to sweeping changes. After last year’s campaign and surprising outcome, Wall Street has fixated on major policy changes promised by the winning party as well as the deep rumblings that seem to have both parties roiling. This has kept both investor’s and the media’s attention on Washington.

Outside the beltway, consumers are confident and happy. Industry in the US is healthy and benefitting from combined tailwinds in a weakening dollar and European resurgence of industry. With steady progress, manufacturing purchasing managers are limiting their view to the near term, avoiding a potential excess that often comes with an economy heating up. And interest rates have remained low as well.

Looking to global economic trends, 9 of the 12 major national Leading Economic Indexes (LEI’s) increased over the most recent month reporting and, The Conference Board Leading Economic Index® for the Global Economy increased as well. Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board noted that, “While the economic impact of recent hurricanes is not fully reflected in the leading indicators yet, the underlying trends suggest that the current solid pace of growth should continue in the near term.”

While this paints a moderately optimistic outlook heading into the last quarter, we know surprises can hit at any time. And, historically the month of October is not without its share of horrendous sell-offs. For example, on October 19th, 1987, dubbed Black Monday, the S&P 500 fell 20.5% but still finished the year ahead by 2.0%!

Still, while some are worried that investors are setting up for disappointment should Washington fail to come through on tax cuts, we continue to believe this rally is much more anchored in broad based economic trends encompassing most of the globe than on a singular expectancy for sudden stimulus from Washington.

If you look back over the 37 years between 1980 and 2016, 13 of these finished September with the S&P 500 ahead more than 10% year-to-date. Those rallies averaged 19.3%—not that far ahead of today’s performance YTD. Removing the impact of 1987’s Black Monday from these stats, in the years where the S&P 500 advanced 10% or better by the end of September the index added on average another 5.8% to the end of December.

Just so you know we’re not wearing rose lenses with this assessment, we remind you that “past performance is no indication of future results and historical data cannot predict downturns.” We are certainly closer to the end of this 8 ½ year bull market today than at any other time before. But this has been true since the day the bull market began—markets move in cycles, never straight lines.

On the other hand, while optimism may presage a bear market, we are nowhere near the euphoria that frequently drives stock prices over a cliff. And, the global economy continues to be in a not too hot, not too cool condition that could extend moderate optimism for quite some time.

We’ll keep you posted throughout the remaining weeks with our Weekly Snippets. If you are not receiving them at this time, please contact us! We will be happy to add you to the emailing list and send you a copy of our menu of asset classes.

Have a great weekend!

Indexes are listed in respective order to their reference above: MSCI EM NR USD; DJ US TSM Large Cap Growth TR USD; DJ US TSM Mid Cap Growth TR USD; DJ US TSM Small Cap Growth TR USD; DJ US TSM Large Cap Value TR USD; DJ US TSM Mid Cap Value TR USD; DJ US TSM Small Cap Value TR USD; S&P 500 TR. These materials have been prepared solely for informational purposes based upon data generally available to the public from sources believed to be reliable. All performance references are to benchmark indexes. Performance of specific funds will vary from respective benchmarks. Past performance is not an assurance of future results. Each index cited is provided to illustrate market trends for various asset classes. It is not possible to invest directly in an index.