“The general pattern described so far is entirely compatible with increased monopoly power for US corporations. Put this way, if they had materially more monopoly power, we would expect to see exactly what we do see: higher profit margins; increased reluctance to expand capacity; slight reductions in GDP growth and productivity; pressure on wages, unions, and labor negotiations; and fewer new entrants into the corporate world and a declining number of increasingly large corporations. And because these factors affect the US more than other developed countries, US margins should be higher than theirs. It is a global system and we out-brand them for one thing..”  ~Jeremy Grantham

No bull market ever climbed a wall of worry as great as the current equity bull.  Global equity prices continued to rise in 2017. Although  Asia and Europe outperformed the S&P, the continued strength of US equities had even the dean of investment managers, Jeremy Grantham, noting the role of politics in supporting the P/Es of US multinationals.

Concerned about the role of growing government and private debt, quantitative easing, stock buybacks, and low interest rates in supporting the equity bull, the year ended with investors staring down the barrel of a gun loaded with central bank tightening, rising interest rates, rising oil and commodities prices, trade wars, and geopolitical tensions.  The US markets got a major shot in the arm from US tax reform legislation at the end of 2017, with market prices continuing higher in January.

The question is hanging in the air, “Can we really go this long without a major equity market correction?” Investors, however, are not necessarily eager to shift to fixed income.  The 30 year bull market in bonds is clearly over – although bonds performed nicely for investors in 2017. It is hard to imagine that performance will be repeated in 2018. Decades of liberal monetary and fiscal policies are over. This is a change of enormous proportion – one that very few understand – particularly those who have been spoiled by fiscal and monetary largesse.

Fixed Income

Equities

Commodities