Tariffs and Taxes and Data, Oh My!

“Volatility scares enough people out of the market to generate superior returns for those who stay in.”

– Jeremy Siegel, Professor of Finance at The Wharton School

The year has started with volatility that we haven’t seen in the last two years, and it continues as I write this letter. There are two primary narratives driving current markets:

  1. A possible China/global trade war and,
  2. A broader technology stock selloff due to backlash over privacy/data lapses, and concerns over government regulation of the largest tech companies.

I will spend some time discussing both topics.

From Hofstadter to Organic Free Range

“Stocks aren’t lottery tickets. There’s a company attached to every share.”  – Peter Lynch

The big news of the quarter was the announcement that Amazon intends to purchase Whole Foods for $13.4B in a deal that will extend the online shopping mall into a bricks and mortar merchant with more than 460 physical locations in the US, Canada and Great Britain. What does this do for the company? Won’t this turn Amazon into one of its outdated, old-line competitors?

Surrendering Before the Battle Begins

“In any sort of contest – financial, mental or physical – it’s an enormous advantage to have opponents who have been taught that it’s useless to even try”  – Warren Buffet

Spring has arrived, and 2017 has continued with the positive sentiment that closed 2016.  U.S. stocks have done very well with the S&P 500 index up over 6% year-to-date.  This positive movement is largely the result of continued expectations that the new President will implement business-friendly tax and trade policies that will further boost corporate earnings.

In the December quarter, 65% of companies in the S&P 500 beat their earnings targets and had an average earnings growth rate of 4.9%[1].  This is the first time the index has seen a year-over-year growth in earnings for two consecutive quarters since March 2015.  More good news is expected in the coming quarters, but investors are now increasingly beginning to wonder if the stock market is “overvalued” and “are we due” for a correction or crash?