The summer months are often characterized by sleepy low volume trading, but the experience in 2017 makes that statement even more pronounced than normal. It is no secret that in recent months, observed volatility is extraordinarily low, but Friday marked the 12th consecutive trading session wherein the S&P500 moved less than 0.3% throughout the day; the longest such boring (not that boring is bad) streak on record. For investors who remain long the market, this calm is attractive as the level of volatility tends to be negatively correlated with the direction of markets (low volatility tends to accompany rising markets, while spiking volatility tends to push values lower). In support of that correlation, the Dow managed to set a fresh all-time closing high crossing the level of 22,000 for the first time this past Wednesday while the broader S&P remains within 1% of its record high set a week back or so. Still, while it is neat to see the market moving higher and seemingly unfazed by ongoing noise from political dysfunction, it has been more than 270 days since the US stock market experienced a pullback of 5% or more; this is not the longest such streak without a pause, but it sits among the longer stretches. That fact alone is probably why the number of media outlets and respected investors calling for a top or sharp pullback in the near term seem to be getting louder and more attention.

On the economic front, the Goldilocks (not-too-hot, nor not-too-cold) economic camp continues to see their base case validated by the incoming data. Most notable and watched last week was the employment report for the now complete month of July; the report showed another round of better than expected job creation and a falling unemployment rate. Company surveys also continue to reflect a stable corporate outlook and upbeat sentiment for business both here domestically and abroad. At the same time, a declining US dollar looks to be helping domestic export activity and sharply rising commodity prices like that of Iron Ore and the stabilization to improvement of oil prices suggest economic activity is healthy and perhaps accelerating (even though acceleration has been elusive throughout much of the economic recovery). And in the US, the number of cities that are experiencing robust economic conditions seems to be broad and expanding. Perhaps the most stubbornly curious data point continues to be on the front of low observed inflation; at this stage of the cycle and with unemployment so low, one would typically expect to see wages growing at a faster clip than they are and resulting in more normal inflation. But low inflation should be enough to help central bankers avoid the temptation to get too aggressive in their pursuit of normalizing monetary policy which could ultimately short-circuit what is now one of the longest economic cycles in US history.

In the coming day, we look to distribute our August commentary to clients (also made available on our website). In that note, we will survey what we believe is the front-and-center topic on investor minds: how much longer than the current market advance continue? In many respects, it is hard to argue with the growing chorus that a notable pullback should be coming amid financial markets that feel to be a bit departed from economic and corporate fundamentals. On the other side of the coin however, valuations while elevated slightly above historical average are getting some help from corporate earnings which grew double-digits again in the 2Q over the same period last year. And, as long as wage growth fails to accelerate meaningfully or provoke higher inflation, it is equally challenging to say that the economy (and financial markets as a derivative) will suddenly impair the current trend beyond a short-term bump or two. We encourage you to check back for our monthly commentary titled Dancing on the Ceiling in the coming days.

Will stocks ever go down again? This seemingly absurd question is actually the result of Google search auto-complete feature if one starts typing the phrase: will stocks ever While we obviously do not root for the market to do so, the answer to this funny question is YES as the strong rally that has gone virtually uninterrupted for the better part of 12 months will assuredly end at some point. Rainy days are part of investing and should be expected (history reveals they do not occur as often as sunny ones, which makes it a rewarding endeavor). But in a period where the market is regularly setting new all-time highs and price volatility hovering near all-time lows in spite of less than encouraging news flow (political failures and dysfunction in particular), perhaps it should not be surprising to observe that this question is being asked of Google often enough to auto-complete. In support of those favorable trends, it is worth highlighting that the S&P500 added another +0.5% last week; the Nasdaq snapped its streak of 10 consecutive positive days on Friday, but still concluded the week up +1.2% adding to the gains by both for July and YTD. Interestingly, momentum factors, those least predicated on economic fundamentals continue to do the best and lead the overall market charge higher while valuation continues to be a factor that is not rewarded by the market at present.

On the economic front where recent weekly data has been somewhat muted and fallen short of the narrative looking for economic improvement, the data last week was more positive. Soft data from corporate surveys continues to produce encouraging readings. Hard data confirmed with bank lending reaccelerating and unemployment claims declining. 2Q corporate earnings are also improving over year-ago levels roughly as expected (and beating corporate guidance by healthy margins). Housing data was also in focus last week amid a number of fresh points was strong with new starts up +8.3% in June over the month prior which had disappointed. This better housing data fits with a logical theme of pent-up demand following the housing crisis 8 years ago and the long shadows it cast until just a couple years ago. At the same time, inflation data remains benign. Abroad, animal spirits (business and consumer sentiment) in Europe continue to look up despite the ongoing uncertainty related to Brexit while China posted very positive data favoring the upside. This is all occurring at the same time central banks continue to discuss shrinking their balance sheets (a form of monetary tightening) and additional rate hikes.

In closing, its been over 270 days since the US equity market experienced a pullback of -5% or more from a recent high. This is not unprecedented, but is well longer than typical. We are keenly aware that markets will not always move unilaterally higher. With that said and despite recent strength, it is hard to characterize investors as euphoric when data reveals that investors continue to pull money out of equities and funnel the proceeds toward bonds. Low volatility suggests that while investors may be complacent (can also be dangerous), but are not euphoric (herding behavior). With so many people continuing to believe we are overdue for a big correction, that may well remain an elusive development. With all that said, the seasonally weakest months are now upon us, and it seems reasonable to suspect some unforeseen negative surprise might have the ability to reawaken fear in the short-run. But returning our focus to the fundamentals, the themes of sound economic attributes suggest the longer-running bull trend can endure a bit longer. Business cycles do not end with profits up and wages up together, and the not-too-hot but not-too-cold Goldilocks theme continues to appear in-tact.

Domestic equities managed to establish fresh all-time highs again last week despite an economic backdrop that remains well short of robust in terms of pace. At the same time global central bankers continue to speak in a way that leaves little doubt they desire to continue on a path toward more normal monetary policy. But while the pace of economic growth may not be exciting, corporate earnings season for the completed 2Q period looks to be more encouraging, especially when compared against year-ago levels. The S&P500 climbed +1.4% last week, and is now up roughly +11% in 2017. Many continue to scratch their heads as to why, given that the promise of a more business-friendly tax and regulatory climate that coincided with the election of an all-Republican congress and Trump now seems equally ineffective as the prior Washington climate. But it is worth noting that the sectors benefiting most from the election last November have actually fared worst since the beginning of the year, suggesting markets are not as tone deaf as they might first appear. Instead, the gains this year appear to be occurring for reasons other than political reform.

Economic readings last week were highlighted by progressing global leading indicators. In the US JOLTS (a measure voluntary job separations) readings were indicative of labor market strength; still improving corporate surveys and measures of sentiment; European data showed strong auto sales, exports, and industrial production; and Chinese bank lending, government spending, and exports appear supportive of a globally sound economy. In addition, oil prices along with other industrial commodities (which do not seem to be worrying the markets the way they did between June 2014 thru mid-2015 when they were rapidly falling) rebounded sharply last week, probably indicating that global economic activity is OK. Related though, low inflation continues to challenge and mystify global central bankers, giving them pause as they desire to continue backing away from ultra-accommodative monetary policies of the last 8 years. Make no mistake, it is these same weak inflation readings and new communication from monetary authorities, that may warrant the most attention from investors as they evaluate how much longer the current economic expansion and bull market may endure. But so long as short rates are below actual inflation AND it does not drive the US dollar dramatically higher it would be hard to describe financial conditions as too-tight. From a fundamentals perspective, perhaps the most challenging attribute of the continued advance of financial markets is that the economy while OK, does not feel strong enough to justify the low levels of volatility and unarguably strong additional upward advance by equities so far in 2017.

In the coming week, investors will be most focused on the continuation and story being told by corporate America through 2Q earnings. The early days of that data dump have been positive and appear on pace to be +11% over the same interval last year; but if reported earnings can even further surprise to the upside it would make the bull case and current level of equity valuations easier to justify. In addition to corporate earnings, we will get a number of fresh data points on the housing sector. Housing remains an important component of the US economy from the perspective that not only does the construction of new homes support a significant number of jobs, but the movement of people to new living arrangements also has large trickle-down impacts for other industries within the economy. At this point, it seems reasonable to project that the momentum is with more optimistic participants through the balance of 2017 and into next year. It not lost on us however that a meaningful pullback by financial markets has not been experienced in well more than a year and a seasonally weaker portion of the calendar is now upon us through mid- to late-September. Combine that with more hawkish speak by central bankers, or watering down the proverbial punchbowl, we may have the catalyst that creates a short-term scare. We are not advocates of market timing, so that awareness of seasonal vulnerability and one potential threat serves more as a reminder that any pullback (overdue) should probably be viewed as just that; not the beginning of the end of this current economic cycle. As one market technician recently put it, structurally bullish but short-term cautious.

Global markets were roughly unchanged last week (S&P500 +0.1%), but volatility picked up as investors appear to be increasingly focusing on a more hawkish Fed and other key central banks talking that direction as well. This tone shift is probably appropriate based on sound economic readings being more normal including (actually low) unemployment rates, steady inflation, and reasonable economic growth; conditions that cannot be described as anything like a crisis or warranting of extraordinarily accommodative monetary policies in which they were implement. But the prospect of diminishing monetary stimulus introduces anxiety for those who firmly believe that asset prices have largely moved over the last 8 years due only to that central bank support. In recent weeks, US equities have struggled for direction, but do feel to be awakening from an extended period of very small intra-day trading ranges. In similar fashion, international markets have also slowed their pace of robust progress that was enjoyed through the first five months of 2017. Interestingly however, the conflicting narrative for economic conditions coming from rising equity prices (suggesting economic improvement) but slipping bond yields and flattening yield curves (which would suggest weakening forward outlooks) appeared to revert a bit last week and in short-term support to the more bullish case.

On the economic front, the big news out last week was the much better than expected employment report for June. Not only was the headline number of jobs added very strong, but there were upward revisions to prior month readings; the details of the report were equally encouraging with the average workweek increasing as well as workforce participation. In addition, surveys of corporate managers across a variety of industries broadly reflect a favorable environment not just in the US but abroad as well. At the same time however, oil prices continue to plumb low levels; two years ago the narrative on negative price action from oil was slumping global demand and created spillover caution and worry over what it suggested about the broader economic climate. Today the markets seem to be maintaining the perspective that falling prices are a function of too much supply rather than a more troublesome indicator. Yet, the price bears watching as it historically has translated into higher borrowing costs for much of the high-yield issuer universe and increased their refinancing risk. We also see

Bringing it all together, what appears most clear is that we are at the onset of a new monetary environment; more mixed than witnessed over most of the last 8 years wherein everything seemed to error on the side of being too easy. More immediate term, corporate earnings season for the now complete 2Q looks to commence this week as well; many anticipate that it will be another quarter where, not unlike the favorable 1Q period, will show companies posting results that well exceed year-ago levels. More uncertain is how reported earnings will stack up against analyst expectations which have been ratcheted up after the 1Q observation that year-ago levels still make for relatively easy comparison (so how much of a beat is already priced-in?). And while the US Fed has been telegraphing its desire to normalize monetary policy for well more than a year, the jury is out on how markets will react to the change in tone and how soon it might morph into action from the ECB (Europe: perhaps the 2nd most influential central bank in the world). We should be careful to remind ourselves that rate increases should not be viewed as a negative when done prudently or carefully as seems to be the appetite; in direct response to improving economic growth and in prevention of too strong price inflation. So long as central bankers do not collectively create an environment wherein financial conditions are excessively tight such that it restricts growth or causes something to break, higher interest rates and returns on money are a good thing for investors. With global real short rates still well-negative (below the pace of reported inflation), it is hard to argue that financial conditions themselves are anywhere near tight; rather the regulatory environment and uncertainty are arguably what has created tight financial conditions and to a large extent limited the effectiveness of monetary policy. From that perspective, it is important that fiscal policy become more sensible (not restricting the ability to borrow for those who show the ability and desire to repay, while excluding access to those who are clearly not in a position to do so). Rising rates are generally in response to an improving growth outlook.

For a second consecutive week, US equities wobbled but concluded on the right side (positive of course) of the ledger with the S&P500 adding +0.2% amid what many investors and the financial media continue to highlight as mixed signals. Bears are saying the decline in bond yields and plunge in oil prices are screaming recession. And, the Citi surprise index has plunged while contending at the same time a lack of inflation means lack of demand. They also argue the Fed is tightening too aggressively and too early in light of these less than robust data points indicate is necessary. Meantime, Bulls are saying goldilocks conditions, not-too-hot and not-too-cold growth and low inflation, continue to pave the way for steady economic expansion. They cite leading indicators continue to increase and unemployment claims remain low; house prices are rising and corporate earnings are poised to continue the 1Q experience of general outperformance relative to both expectations and the year-ago period.

Stepping back from the commentary, the data last week indeed remains a mixed bag. The US yield curve continued to flatten last week while company surveys report a steady and optimistic tone from businesses; oil continued to move lower (and broke the threshold for a technical bear market) but copper and iron ore began to improve. Corporate spreads remain steady (suggesting credit risk is not rising meaningfully as it did last year during the oil selloff), but economic data from China was mixed. US retail continues to be a tale of two extremes as Amazon continues to prosper and innovate while more traditional outlets suffer and try to play defense. More short-term positive was that US housing activity seems to be improved following the weak reading that captured attention last month. And on the US policy front there remains at least the appearance that Congress is still attempting to move its agenda of healthcare and tax reform forward despite the expectation by many that a toxic Trump presidency will torpedo any actual progress on hoped-for pro-growth fiscal policy (this was observed through the outperformance of the healthcare sector last week). Another positive was a report that US banks are in very strong and healthy shape following release of recent stress test results.

At the end of the day, what remains most clear is that the days of easy US monetary policy are ending and the market seems to retain at least some hope (even amid rising skepticism) that fiscal policy can successfully pick up the baton. Additionally, while the US economic and financial market cycle is now among the longest in history (it was 10 years ago in June that the US housing crisis began to unfold and morph into a full-blown global financial crisis lasting through Spring 2009), economic conditions and animal spirit sentiment outside the US and particularly in Europe are earlier in their recovery phase. This improvement abroad provides a tailwind in an ever more globalized economy and investors are viewing the recent crash in oil prices as an issue of oversupply rather than one of weakening demand. Bottom line: for the moment we believe the bulls continue to retain the upper hand in this goldilocks story; the bears have not yet began to head for home and recession risk still seems all but imminent. Still, investors must acknowledge that a market pause or more meaningful pullback seems well overdue in the short-term following complete hiatus since the beginning of 2017. Complacency born by persistent low volatility is a recipe for short-term surprise should unexpectedly weak data present itself.

Enjoy the upcoming 4th of July holiday and be on the watch for our latest quarterly newsletter to come in the first part of July.

The second full week of June, which yielded more flat market performance with the S&P500 barely changed at +0.1%, seemed to offer a little bit of something for everyone. Volatility and the daily trading range observed was up a touch relative to the sleepy pattern investors have grown accustomed to so far in 2017, but remains low by historical standards. Perhaps the most notable development throughout the week was the Fed decision to raise short-term interest rates by another +0.25% bringing its target up to between 1.00% and 1.25%. This hike came despite some recent readings suggesting softer than anticipated and desired inflation. With that, the bearish camp can find support for their case in observing the continued flattening of the yield curve (inverted yield curves have served as a reliable leading recession indicator), weakness in oil, or the recent reversal in what has been the high-flying tech sector so far this year. The glass-half-full crowd might instead choose to focus on the rotation by the market into Financials (often described as the transmission of the economy) despite flatter yield curve, the weakness in gold stocks, or the resiliency from the Industrials sector. Whatever side you find yourself, the market continues to send mixed signals.

From a fundamentals perspective, we already highlighted perhaps the biggest development with the Fed rate increase last week, although the decision was well telegraphed and of essentially no surprise to market participants. Outside of that news, there was a package of stronger data around the world including key manufacturing indexes, Eurozone and Canadian employment, bank lending in China, Indonesia imports, and retail sales in Singapore. Those insights would tend to suggest then that recently cooler inflation readings despite continued labor market tightness are due to more transitory factors such as sliding oil prices on too much production and technology disrupting other goods and services pricing structures than an indication of a slowing economic environment. On the weaker front, some recent housing metrics in the form of new permits and mortgage have been disappointing relative to the time of year, as well as slumping auto sales; these are two sectors of the US economy that have significant trickle-down impacts so downshifts in activity are worth noting.

As observed in our update a week ago, perhaps the most unsettling attribute of recent market dynamics is the flattening yield curve. In that vein, the Fed decision and relatively hawkish press conference did not help. Either forward growth and/or inflation expectations need to lift for the yield curve to steepen when the Fed is in the process of propping up short-term rates. Further, stocks are admittedly not cheap, but it is important to also note that neither are bonds, real estate, or about anything else that is investable. If the financial crisis and unprecedented level of monetary stimulus applied in its aftermath in pursuit of stabilizing the economy has done nothing else, it has created a lot of money that generally remains underutilized and unproductive on corporate balance sheets or being hoarded earning decidedly less than inflation. It is from that perspective that valuations cannot be viewed as a timing tool, because significant sums of that money remain in search of more productive or opportunistic uses. Further, this logic probably also goes a long way toward explaining why the Fed continues to communicate a plan of additional rate increases, albeit at a still slow pace. After all, this has never been a normal economic or rate cycle, but the economy is strong enough now to pursue normalization (very slow but incremental steps away from extraordinary accommodation). In the short run, we suspect that what is a more difficult seasonal stretch of the year, coupled with mixed data and hawkish speak from the Fed will produce some anxiety for the markets, but that is unlikely to mark the end of this cycle.

Broadly, US equities were mixed for the week ended June 9, but remain higher after 7 trading days in June. The S&P500 slipped -0.3% at the same time as the Dow added +0.3%; meanwhile the tech-heavy Nasdaq which is outstripping virtually all other US market barometers so far in 2017 slipped noticeably on Friday and logged a -1.6% dip for the week (still up +15.3% YTD). Perhaps more notable however is that overall market volatility remains depressed and might best be characterized as sleepy. Some feared heading into the week that a hotly anticipated testimony by former FBI Director James Comey might reveal a smoking gun, active conspiracy, or attempt to obstruct justice by the Trump administration and be the straw that breaks the new Presidents back (the testimony delivered on none of those accusations). And, that story did capture most of the attention and discussion for the week. We also witnessed political populism return with the significant loss of representation by the conservative party in the UK following its election, which all else equal results in a more uncertain geopolitical environment and fattens Brexit tail risks. But consistent with the overall theme of recent months, it remains hard to see much of anything upset the financial markets.

Last week we wrote in our monthly commentary that fundamentals such as economic readings and corporate earnings matter most for any investor with timelines beyond the shortest of term (not political noise or media headlines attempting to provoke emotion). In that regard it was another week that kept alive the more constructive case that building for much of the last 12 months: slow but steady improvement not just here in the US but around the globe. Admittedly, that pace of improvement continues to disappoint depending on who you talk with. But the global economic landscape and outlook has much improved; employment continues to trend higher; and industrial production remains firmly in expansion in countries like Germany and China. US bank lending also continues to advance and corporate earnings estimates for the remaining quarters of 2017 are being revised higher suggesting the huge year-on-year progress reported for the 1Q will continue. Mortgage equity withdraw (the act of monetizing equity in your home value) is on the rise again after being virtually dormant since the financial and housing crisis in 2008, and acts as another support for the powerful US consumer. Unfortunately, the week was not without some soft data points as well that give ongoing concern including the recent slide in commodity prices including iron ore and oil prices; typically commodity prices should be expected to rise as economic growth is accelerating. In a related way, inflation expectations are slipping as the Fed is expected to raise interest rates for the 2nd time this calendar year (usually an inflation fighting tool); this will continue to gain attention especially as it would otherwise naturally cause the yield curve to further flatten or move toward inversion (an ominous and early recession signal).

While soft data (surveys, consumer, and business sentiment) continue to suggest a supportive backdrop for the economy, corporate earnings, and thereby financial markets, one of the biggest mental obstacles for investors to overcome and remain constructive remains the age of the current bull market. Additionally, following roughly 15 months of a strong rally by domestic equities without a meaningful correction, the valuation of domestic equities is not cheap. In that regard, foreign which has generated attractive performance here in 2017 but lagged badly for several years, looks to have additional and significant room to run assuming that foreign political complexities (European referendums and elections) do not steal what appears to be an upturn in economic progress. As we look to the weeks ahead, the pace enjoyed by investors in recent months seems overdue for a pause and we are also entering what is typically a softer period of the year from a seasonality perspective. That said, when reviewing the confluence of data, skeptical sentiment, and slow but steady pace, it would suggest this economic cycle is not at a near-term risk of dying and more gas is still in the tank.

Investors witnessed the sharpest one-day decline since the Election last week, declining -1.8% on Wednesday as headlines broke that President Trump may have tried to suppress the FBI investigation into his administration involvement with Russia. As news of that latest twist in the ongoing saga between the new administration, the FBI, and what appears to be a very serious war by the press and government insiders (leakers) against the new President, the word impeach became front and center conversation and doubts growing that Trump will still be President of the United States in 2018. Financial markets are rarely helped by uncertainty, and it goes without saying that these latest developments increase anxiety while also appearing at first glance to reduce the odds that the pro-growth political agenda credited with at least a portion of the market rise over the last 6 months will come to fruition. Yet, to the surprise of probably many, US equities managed to largely reverse the acute one-day damage and conclude the week down just -0.38% from where it began.

Why the sudden positive reversal by the markets on Thursday despite the ongoing uncertainty surrounding the President? From our perspective: Economic Fundamentals. A look back at the two modern-day parallels of such Presidential uncertainty in both Nixon and Clinton (impeachment hearings) impeachment eras reveals that the market continued to be driven by economic underpinnings and were little affected by the political noise of the day. Logically, this makes sense because the questions any investor should ask themselves when weighing new developments of any sort is, how does this news affect the real economy? Will it impair the current operating thesis that growth will continue? Specific to this political storm, is this latest controversy going to affect how consumers spend (will they be less likely to purchase a new car, home, or even curtail their consumption of new clothing, electronics, food, or vacations)? Probably not from our perspective. Secondly, does the political circus reduce the likelihood of pro-growth policies materializing from what were previously expected? This second question is more debatable, but one could highlight that expectations of Trump being successful were steadily declining since inauguration to now sit at a level where many believe we are back to Washington dysfunction as usual. A contrarian might ponder, with expectations so low the possibility for positive surprise and appetite by the legislative branch of our government to move forward on tax reform and infrastructure investment despite Presidential controversy is only amplified.

Where does this leave us? From an economic perspective, the US and global economies continue to enjoy an improving backdrop. Just concluded was an extraordinarily strong 1Q earnings season when comparing it to a year ago. We also continue to receive data showing a pickup in home demand, low unemployment, rising consumer net worth, and lots of money still looking for a more productive place to land. Credit conditions also remain accommodative for corporate finance as evidenced by low credit spreads while European economic data continues to show improvement abroad. From where we sit, political turmoil and worries usually tend to be noise and most influence the short-run. The real focus for investors must remain the fundamentals and on that score the economy and by extension the financial markets, still seem to have some fuel left in the tank. At the very least however, 2017 looks like it just got a lot more interesting as the soap opera that currently describes this Presidency just became a lot more intense.

Domestic equities continued their quiet walk during the 2nd full week of May, experiencing the smallest average intra-day trading range of the year and among the lowest in history. Some undoubtedly find the calm mood peculiar; there remain more than ample worries to fill the room; the sudden firing of the US FBI director, ongoing geopolitical tension, and renewed news of Chinese economic turbulence are top of mind. But historically, periods of quiet volatility are accompanied by above average market returns. The broad market as measured by the S&P500 did slide -0.3% for the week but remains roughly flat here in the month of May. On that score, the sentiment among some financial media that investors are perhaps too stupid to realize the Trump administration has delivered none of its promises on the economy, may appear correct at first glance. But what is lost in that simplification or attribution for performance is reality of a dramatic improvement in corporate earnings following what was a 4 quarter contraction beginning 4Q2015. Said differently, while a Trump Bump was probably responsible for the market advance in the aftermath of the election in November and through early Spring, fundamentals are improving if for no other reason than some easy year-over-year comparisons and those are what should be credited with ongoing market stability.

As alluded to above, corporate earnings are the key force supporting the financial markets at this point (as they theoretically should be throughout any cycle). With over 90% of the companies in the S&P500 now reported for 1Q, nearly 3-in-4 beat street expectations by at least 1% and the aggregate level of growth now stands at +14% over last year. That is a big and broad-based improvement! Aside from corporate earnings, economic data around the world was also favorable as global leading economic indicators continue their hook higher; soft measures including surveys on activity and sentiment are improving; employment remains strong and unemployment is now toeing all-time low levels; and data in Europe remains quite favorable following nearly a decade of stagnant growth and political discord; all while reported inflation is not problematic. There were also news reports that the housing market is heating up with new households opting to purchase vs. rent for the first time in many, many years. Housing is important because the construction and occupancy of new homes has significant favorable trickle-down effects for broad swaths of the US economy including both manufacturing and money velocity.

So despite what is now a virtually uninterrupted climb for the financial markets since the election and even last summer, the path of least resistance seems to be higher. We are not deaf to the argument however that a more noticeable pullback or correction is overdue. Still, any such retreat would tend to be viewed by us as an opportunity to rebalance or more confidently deploy capital into quality businesses given that the US economy has never entered a recession when corporate earnings were on the rise as they are now. This economic cycle is mature, but the fundamentals across the US and developing in Europe suggest a market that is at little risk in the near-term of falling apart.

US equities continued their move higher for a second week, resulting in another month of gains for domestic equities. But the real story during April was the strong performance turned in by international markets. While domestic equities as measured by the S&P500 climbed roughly +1% when including dividends in April, the MSCI EAFE more than doubled domestic performance with its advance of +2.5%, mostly occurring following the first round of the French election process with a result that suggests populist anti-establishment movements that pose great uncertainty to the global financial (same forces that are credited with driving Brexit and election of Trump in 2016) norms may be losing momentum. Also encouraging during the second half of April was a return of outperformance to the more economically sensitive areas of the equity markets including financials, smaller-size companies, and industrials.

From a fundamentals perspective, the final week of April was generally positive. Perhaps most noteworthy was the strong performance being turned in by corporate America for the now complete 1Q reporting season. More than 200 of the S&P500 constituents reported quarterly earnings last week, and are looking set to beat not only earnings, but also revenues. When looking at earnings, it is appearing likely that aggregate index earnings will be up roughly +13% over the same period last year! While one considers that the year-ago levels make for some easy favorable comparisons, the nominal improvement remains quite noteworthy and is overshadowing the weak real (after-inflation) GDP growth being reported for 1Q17. The US economy has never (yes, never is a powerful word) entered a recession when corporate earnings were rising, let alone so strongly. For the economy as a whole, US data also continues to provide support to those subscribing to the view that the economy remains in a strengthening trajectory. US bank lending is shown to be increasing over recent weeks; Iron ore prices (a key input to industrial production) are again rising; and wages are accelerating as is household formation and the homeownership rate. Abroad, European earnings for 1 are on pace to advance +24% over year-ago-levels even as central bankers around the globe remain accommodative with inflation data remaining benign. All of this suggests that economic activity will again repeat its recent-years pattern of a marked slowdown during 1Q and rebound in the Spring.

With the first four months of 2017 being so decisively strong for investors, the phrase advocating to sell in May and stay away naturally creates anxiety for investors and even perhaps the impulse to temporarily abandon long-term objectives. We too believe that it feels like the market is due for a more meaningful pullback than anything witnessed in the last 6 months. Yet while we are now entering what is often a more seasonally challenging month for long investors, the sell-in-May crowd (whos most avid subscribers advocate not buying back in until after September) would have experienced very mixed-success and disappointment in recent years. Further, out today from a technical team at research firm Strategas Research Partners is a chart showing that when the broad indexes are in an upward sloping trend, performance in these stereo-typically softer coming months continues to skew positive. We remain of the perspective that trying to time pullbacks reduces investing success to that of luck; and while we may see a decline as we enter what is often regarded as the dog days of summer, such a move would be viewed as a buying opportunity rather than the start of a material change in trend.