May 15, 2017
Stocks continue to trade near all-time record highs on extremely low-volatility.
Stocks continue to trade near all-time record highs on extremely low-volatility. Bears argue that with U.S. corporate quarterly earnings mostly behind us and very little fresh economic news scheduled for this week, the media minds will more heavily press the headlines and drama coming out of Washington, the latest of which is President Trump's firing of FBI Director James Comey.
The Senate Intelligence Committee is currently investigating allegations of Russia meddling in last year’s U.S. Presidential election and allegations of collusion between the Trump campaign and Moscow. They had extended an invitation to Comey to testify in a closed session this week, but the former Director declined.
The session would have provided Comey a first chance to discuss with lawmakers the circumstances of his firing, of which there seem to be conflicting accounts. Keep in mind, the Senate is also still trying to
compose a new bill to repeal and replace the Affordable Care Act, which many investors see as a roadblock on the path to implementing tax-reform and infrastructure spending.
There is a risk in the market that a lack of confidence in the President could hurt his support in
Congress, thus hindering his ability to get his pro-growth policies passed. As for money-flow, ETFs
continue to grow at a very strong clip. Year-to-date data shows more than +$175 billion has been added to ETFs this year and that total assets under ETF management could exceed $3 trillion by year end.
Interestingly however, during the first quarter of 2017 most of the money was flowing into funds that only owned U.S. stocks, whereas during the second quarter most of the money is going into ETFs owning foreign stocks.
Many big-money investors have been arguing that U.S. stocks are "over-valued" in comparison to their
foreign counterparts and it looks like they are putting their money where their mouth is.
There's some fear that accelerating wage growth and an uptick in inflation coming at the same time the U.S. Fed is looking to raise interest rates could put downward pressure on forward looking profit margins for many U.S. businesses.
The tight labor market, faster wage growth and higher cost of debt could essentially lower profit margins and forward guidance. The bears also argue that we could see a significant slowdown in corporate stock buybacks as rates and wages move higher. 
Finally, we will decidedly end our notes with our reaffirmation of the growing need for alternative strategies. We would like to think that our alternative view on markets is consistent with our preference for alternative risk and alpha driven strategies. Alternatives offer the investor a unique opportunity at non correlated returns and overall risk diversification. We believe combining traditional strategies with an alternative solution gives an investor a well-rounded approach to managing their long term portfolio.
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With the growing concentration of risk involved in passive index funds, with newly created artificial intelligence led investing and overall market illiquidity in times of market stress, alternatives can offset some of these risks.
It is our goal to keep you abreast of all the growing market risks as well as keep you aligned with potential alternative strategies to combat such risks. We hope you stay the course with us, ask more questions and become accustomed to looking at the markets from the same scope we do. Feel free to point out any inconsistencies, any questions that relate to the topics we talk about or even suggest certain markets that you may want more color upon.
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