3rd Quarter 2017 Newsletter & Annual Open House

Submitted by The Galarneau Group on November 8th, 2017

Newsletters

THIRD QUARTER 2017 NEWSLETTER

Mother Nature decided to play a trick or treat on much of New England, bringing a volatile end to one of the calmest and warmest stretches of fall weather on record. The strength and unusual direction of the wind caused more widespread power outages than the infamous Ice Storm of 98. We, and many of our neighbors, were without power for nearly a week. Supermarkets packed away all their perishables and barred their frozen food cases to preserve inventory. Folks with gas generators were driving many miles to find working pumps. We were grateful that our business landlines and DSL continued to operate, giving us a chance to reiterate why we won’t be giving up our landlines any time soon. Today the sun is shining, power is back on nearly everywhere, and cleanup is mostly done. Time to restock the fridge and get the snow blowers and shovels ready for winter.

The stock market has sailed through October, a month known historically for nasty surprises, marking 8 straight weeks of advances. Nuveen Asset Management’s Nov. 6, 2017 weekly investment commentary, cites several reasons why the company believes future gains are supportable:

The Fed looks likely to raise rates again in December, with 2 to 3 additional increases likely coming in 2018. The Fed should continue to raise rates slowly, according to the company.
October employment figures were mixed, but mostly positive.
Consumer confidence continued to improve, with the index coming in at 125.9, the best number since Dec. 2000.
Corporate earnings were strong in the third quarter. With some 80% of companies having reported, 70% exceeded previous earnings.

Meantime, non-U.S. equity markets are up over 20% January-October; and Emerging Markets are up 30% over the same time-frame. Interestingly, Lord Abbett’s Perspective carried an article last week about the increase in world trade volume. Since the economic collapse of 08-09, world trade volume, relative to world industrial production, had been sluggish. This year, especially in emerging markets, the pace has been picking up, and is now at a faster rate than global production for the first time in years.

We continue to see evidence that the secular bull market we have enjoyed for the past several years should continue. Volatility in 2017 has been unexpectedly low; and we would not be surprised to see an increase in volatility in 2018. Opportunities grow out of market corrections, which add value back into stock prices. We will be prepared for both volatility and opportunity.

We continue to favor municipal bonds in the fixed income market. While treasury and corporate bond markets have traced a narrow path all year, municipal bonds returned some 4.7% through September, not accounting for the tax savings on interest, according to the Barclay’s Municipal Bond Index. Lord Abbett Market View Oct. 16, 2017 commented about how the performance of municipal bonds took many by surprise.

“Time In The Market

The municipal bond market always seems to be facing some sort of potential threat, whether it is media headlines about a troubled credit, fear of rising interest rates, rhetoric coming out of our nation’s capital, or technical pressures from temporary supply/demand imbalances. But over the long term, municipal bonds have delivered tax-free income, limited price volatility, and attractive risk-adjusted returns for investors who have stayed the course.

Despite this compelling return profile, mutual fund flow data suggest that many investors try to time the market for municipals, redeeming at the first signs of difficulty and jumping back in once the coast looks clear. The performance record of this asset class, however, suggests that investors would be better served by maintaining a long-term allocation to municipals and avoiding the pitfalls of market timing.”

The newsletter also showed that over the past 20 years, municipal bonds have offered higher after-tax yields and lower volatility than Treasuries of comparable maturity. We continue to look for municipal bonds with high ratings and attractive tax equivalent yields.

As the year ends, we hope to see many of you at our Annual Open House on Nov. 17. It has been an immense pleasure to work with you again this year and we thank you for your business and your trust. The next few weeks will be an appropriate time to look at realized gains and losses in taxable investment accounts, and to be sure you have completed any Required Minimum Distributions on IRAs. Looking ahead to 2018, the IRS has announced retirement plan contribution limits for 2018. Maximum contributions to 401Ks, 403Bs, and 457s rose to $18,500 for 2018. SEP salary limits on which contributions are based rose to $275,000, from $270,000. Maximum contributions and Catch Ups for those over 50 remain the same for IRA’ and SIMPLE plans. The IRS announcement of 10-19-17 sets these figures for 2018 regardless of what changes to the tax code may come out of the tax reform bill before Congress.

We hope you have a safe and happy holiday season, and a new year filled with good friends, health, and opportunities.

To You & Yours, Our Best Wishes;

The Galarneau Group