October 2017

The S&P 500 closed September 30 at 2,519.36 an all-time high.

S&P 500 Large Cap Index (SPY), the Russell 2000 Small Cap Index (IWM) and the iShares Transportation Index (IYT) all made

new highs last week. This across the board strength was confirmed by the cumulative advance decline line, which suggests further gains for the

market through December. To date, uncertainty over the impact of the reduction of the Federal Reserve’s $4 Trillion balance sheet has been taken in stride. The geo-political uncertainty involving North Korea, Iran and the impact of two Cat 5 hurricanes has yet to impact stock prices.

Stock market volatility, as measured by the VIX, is down more

than -30% year-to-date. The market continues to climb its "Wall of Worry," due to low interest rates, low inflation, rising profits and improving economic activity. According to FactSet, the forward 12-month price earnings ratio

is 17.7X for the S&P 500, above the 5 and 10 year averages

but below prior market peaks. Analysts foresee an 8% earnings increase for the coming year. The dividend on the SPX remains about 2%. Global economies are on the rise in China, Europe, Japan and many developing countries.

There is now a 70%+ probability the Feds will raise the  

Federal Funds rate in December. The 10-year Treasury note yield of 2.33%, is just above their yet to be reached inflation target, and provides little room for a

policy error or an inflation spike. Bonds appear to be less attractive than stocks at these levels. Economists see few signs of recession in the cards for the next 12 months. Tight bond credit spreads and a positive yield curve continue to support 2% GDP growth even without fiscal stimulus.We still expect a tax reduction package late this year or early next which will improve earnings prospects and repatriate overseas corporate cash to the U.S.

We continue to monitor signs of change in either interest rate or

fiscal policies that may upset this "steady as she goes" apple cart.

Of course, a 5% correction which has not occurred for over a

year is possible at any time.

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