The U.S. economy keeps trudging forward. Most fundamentals remain good or strong. Optimism about further improvement in 2018 has been dampened by the gridlock in Washington. No progress has been made on healthcare. There has been scant discussion of tax reform. The European economy appears to be doing well, although Germany’s trade surplus is having adverse consequences for other members of the EU. No news is good news about Greece.
Stock market performance continues to be positive, although there has been choppiness here as well. The fundamentals underlying stock prices are good. The Trump Administration is more supportive of business than its predecessor. Investors seem to discount the disarray in Washington. The possibility of a trade war is deeply disturbing. The relative appeal of equities will diminish as interest rates increase. Inflation is below the Fed’s target, and it is likely that the Fed will increase rates only once more this year. It is in the Fed’s interest to increase rates, so that in future economic downturns, it is able to lower them to encourage growth. Given the lower yields in Europe, however, foreign demand for U.S. government and industry bonds tends to bid up prices and lower yields. The Fed is planning to begin selling off its massive bond inventory this fall; this is another form of tightening.
The most important aspect of investing is the asset allocation that is best for your situation; next is your risk tolerance. Then review the holdings in your portfolio. Since markets are at or near highs, harvesting gains to rebalance to your target allocation makes sense. If you’d like help with any aspect of this, I’ll be glad to give you a hand.