Happy 4th of July!
As the second quarter comes to a close, there are many situations we continue to monitor. Please call us if you have specific questions regarding our investment thesis or questions about your account.
The market held steady in Q2 and added to the positive performance that we experienced in the first quarter of this year. Economic numbers continue to show improvement, but not strongly enough to suggest inflation risk is on the horizon. We believe the Federal Reserve will remain positive on raising rates, but use methodical and conservative measures to determine the timing of those rates.
Most of the major investment themes from the first quarter persisted through the second quarter. Traditional retail continues to struggle, and Amazon resumes their push for innovation as they announced their intention to purchase Whole Foods Market. There are many reasons why Whole Foods is an attractive acquisition for Amazon, most notably every Whole Foods location can now be used as a distribution channel for Amazon’s products. This is an appealing asset for Amazon as they continue to solve the “last mile” problem for same day delivery and respond to Walmart’s acquisition of Jet.com. Innovation will be the major theme for retail and grocery stores over the next couple of quarters.
The financial sector had a strong finish in the second quarter. Banks have passed their Fed-mandated stress tests, and are showing strong balance sheets and low debt levels. After a brief pullback mid second quarter, the financial sector looks to resume market leadership in a summer rally. Banks and financial institutions will remain an attractive investment theme into 2018.
Energy and oil companies continue to underperform as OPEC and oil producing countries attempt to create production limits. After the pullback in the first half of the year, energy is an attractive area for new investment dollars. Oil prices will rise in response to an improving global economic outlook. As energy prices recover, we are targeting high dividend paying equities and oil conglomerates. We believe oil will trade consistently over $52 a barrel by the end of 2017.
Lastly, political news is a source of concern for the markets as the Republican party attempts to find some common ground to work on their political agenda. We continue to watch the newly proposed Health Care Bill. In its current form, we are not optimistic on the passing of the bill. The Republican party seems to be fractured in its support of the President’s agenda, which will likely cause volatility in the markets for the foreseeable future. In addition, President Trump’s approach to international diplomatic concerns raises risk levels in the market. However, we believe some type of tax reform will be accomplished by the end of the year― a positive move for our economy.
We will continue to monitor the markets for opportunities and risks and adjust accordingly.
Please call us with any questions. We look forward to hearing from you soon.