The first calendar quarter of 2017 saw a continuation of the prior quarter’s positive performance in most capital markets, with global equity markets delivering further gains, and extending the equity markets’ rally that accelerated in the last two months of 2016 (a.k.a. “the Trump Bump”). Domestic and developed foreign equity markets around the globe delivered solid, mid-single-digit returns last quarter, with most of those gains gleaned in the first two months of the new calendar year. Momentum in the stock markets cooled in March, as investors’ sentiment reached dangerously high levels, leaving few “buyers” holding capital on the sidelines, and with stocks “priced to perfection”. Here in the U.S., expectations for increased corporate earnings, accelerating economic growth, and a shift away from monetary stimulus toward (expected) fiscal stimulus, has led to further expansion of the market’s multiples. Domestic stocks currently trade at levels that are worrisome to those of us who believe that stock prices should directly relate to their underlying assets, earnings, and sales. At these levels, we see equity risks as having increased, and in recent weeks, we have observed an increasing separation in returns by sector, with “value” stocks, financials, selected health care sectors, dividend growers and shale oil companies finally beginning to overtake the “growth” stocks that have led the market’s expansion since 2009.

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