The Markets – U.S. equities ended the month of October up just a bit with a monthly gain of 2.12% as measured by the S&P 500 Index. Year-to-date, the S&P 500 is positive 14.92%.
Washington – We anxiously await the proposed “biggest U.S. tax overhaul in three decades”. With few real facts, and folks within the GOP espousing different points of the proposal, we will wait to make further comment. Perhaps the biggest news this month will be the appointment of the next Chairperson of the Federal Reserve. While we believe Janet Yellen has done an exceptional job and wouldn’t mind seeing her continue as Fed Chief, The New York Times published their prediction that Trump will appoint Jerome Powell.
Since Mr. Powell has been a governor on the board of the Federal Reserve since 2012, and he has been largely supportive of Ms. Yellen’s approach to monetary policy and financial regulation, he likely would keep the Fed on a consistent course. Mr. Powell is considered a monetary dove, which means he has a penchant towards managing unemployment to low levels. Contrast that with a monetary hawk, which would place managing inflation as their primary motivator in managing monetary policy. We see Mr. Powell as a safe choice and would not be too concerned with him at the helm.
The Economy –Real GDP came in at 3.0% annual growth rate in Q3 which follows a revised upward 3.1% annual growth from Q2. The strong U.S. GDP number sets the stage for a very important final quarter for 2017.
Headlines- Since we have written about Syria, North Korea, and the NFL over the past few months, we have decided not to address those topics this month. Instead, we turn our focus toward the markets. U.S. companies have been ahead of consensus for the most part, in particular, revenue trends have continued to fuel optimism. “What really matters for the market is earnings, which is what should matter, and earnings have been pretty darn good,” said J.J. Kinahan, chief strategist at TD Ameritrade.
“Are there things that could disrupt the apple cart? Sure. There are a lot of expectations around the tax plan, so the details could disappoint, and valuations are absolutely high, even if we are seeing growth in earnings. You don’t see years like this, where markets just go straight up. We’re due for some kind of pullback,” said Kinahan.
Book recommendation: How to Talk to Anyone, Leil Lowndes.
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