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Investment Letter

4th Quarter 2017

The 2017 “Wall of Worry” was mountainous for investors.  It included uncertainties about the Trump administration on issues of trade, immigration, health care, taxes, and foreign policy.  In addition to the domestic worries, global concerns over BREXIT negotiations, international elections, China’s currency and debt troubles, devastating natural disasters, and escalating geopolitical tensions (North Korea) were significant headwinds for economic prosperity.  Despite the anxiety, investors surmounted the wall of worry, and financial markets continued the positive momentum.  The current bull market has now advanced to be the 2nd longest (105 months) and 2nd largest (return of 295%) of all bull markets dating back to 1926. 

The Dow Jones Industrial Average (DJIA) enjoyed another successful year.  The index ended 2017 just shy of 25,000 points (24,719.22), posted 31 new all-time closing highs during the 4thquarter, and had a 2017 total return of 28.11%.  The S&P 500 Index also performed well during 2017 posting a year-to date (YTD) total return of 21.83%.  International stocks (MSCI EAFE Index) led the group with a YTD total return of 25.03%.

 The table below recaps the 4thQuarter and YTD performance of major market indices:


Asset Class


4thQtr. 2017 Total Return

2017 Total Return


BofA/ML Three-Month U.S. Treasury



U.S. Bonds

Barclays Intermediate-Term Treasury



U.S. Large Co. Stocks

S&P 500



U.S. Small Co. Stocks

Russell 2000



International Stocks

MSCI EAFE (net div.)



Real Estate

DJ Select Real Estate Securities Total Return




The DJIA was not the only index setting new records in 2017.  The table below provides the year end close and all-time closing highs for the major indices.




S&P 500








All-Time High

24,837.51 on 12/28/2017

2,690.16 on 12/18/2017

1,548.93 on 12/28/2017

2,388.74 on 10/31/2007

U.S. economic conditions continued to be supportive of the eight-year expansion.  See the economic indicators below for additional information.



3.2% Growth (annual rate) – 3rd Quarter 2017



1.8% CPI (less food and energy) and 2.1% CPI (all items)

year-on-year December 2017


Interest rates

December 2017 increase 0.25%. Federal Funds Rate 1.25 - 1.50%



Unemployment at 4.1%; 148,000 non-farm payroll jobs added in December; Labor force participation rate 62.7%; Health care, construction, and manufacturing were positive contributors to job growth; Total non-farm payroll jobs added in 2017 = 2.1 million



ISM Manufacturing Index remained in expansion territory as activity rose across most categories.  Orders, shipments, and inventories increased for durable goods and non-defense capital goods.


Business Spending

Private non-residential investment continued to trend upward; New durable goods orders increased 1.3% in November.


Corporate Profits

3rd Quarter 2017 - U.S. corporate profits increased 4.3%;

S&P 500 Earnings per share = $31.32



New home sales increased 17.5%; Housing starts rose 3.3%; Existing home sales were up 5.6%; Building permits declined 1.4%; MBA fixed 30-yr mortgage rates = 4.25% 


Consumer Spending

Disposable income remained strong; Consumer Confidence declined slightly in December; Retail Sales increased for the fourth consecutive month; Total vehicle sales rebounded after a two-month fall; Personal spending increased; Durable and nondurable spending remained high; Savings rate = 2.9%.



Oil price (West Texas Intermediate) = $60.46/bbl – 12/29/2017; Gas price (U.S. average regular unleaded) = $2.52/gal – 1/1/2018



The December statement from the Federal Open Market Committee (FOMC) confirmed economic activity was rising at a solid rate and labor markets continued to strengthen.  Even with hurricane related fluctuations, job gains were solid, and unemployment declined.  The FOMC also indicated that household spending expanded at a moderate pace, growth in business fixed investment picked up, and inflation remained low.  Based on realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1.25% to 1.50%.  Going forward, the FOMC’s stance on monetary policy remains accommodative, and the timing and size of future adjustments will be data dependent.[1]   The Fed’s policy normalization plan is still in the early stages, but the gradual reduction in the balance sheet seems to be going well.  The strategy is to gradually reduce the amount of mortgage-backed and Treasury securities by approximately $10 billion a month to a maximum of $50 billion a month by the end of 2018.  The impact of larger reductions should be more evident later this year.  In other news, Jerome H. Powell will become the new Chair of the Federal Reserve when current Chair Janet L. Yellen’s term expires on February 3, 2018.  He has been a member of the Fed’s board of governors since 2012, and he has earned a reputation as being a pragmatic policy maker. 

International economies advanced further during the quarter.  Global growth, strong labor markets, low interest rates, and improved manufacturing data continued to be tailwinds for economic expansion across the Eurozone.  United Kingdom (UK) growth was muted.  Labor markets were stronger, but retail sales declined, inflation remained elevated, and wage growth was nominal.  BREXIT negotiations continued to progress, but a new phase of talks on transition and trade relations will be a challenge for officials.  Activity in Japan advanced thanks to accommodative financial conditions and large-scale stimulus measures.  Growth was low (below 1%), but improvement in international trade (exports) sustained manufacturing activity and contributed to a pick-up in business investment, corporate profits, and business sentiment.  China’s economic growth rate remained strong (6.8% - 3rdQuarter).  Infrastructure and property investments improved, but data pointed to private consumption as the main driver of growth.  Emerging market economies continued to thrive.  Higher commodity prices, improved credit, investment growth, accommodative policies, and global trade were positive contributors to economic activity.

Our outlook for the domestic economy is still optimistic.  We anticipate a continuation of slow and steady economic growth, probably in the range of 2% to 3%.  The new tax bill is likely to provide a short-term uptick in growth, but we don’t foresee it being a long-term game changer for the economy.  We expect the unemployment rate to remain low, and inflation should stay close to the Fed’s 2% target.  The improvements in manufacturing, corporate profits, and the housing market will continue to provide support for the economic expansion.  The recovery in oil prices during the second half of 2017 was attributed largely to supply cuts.  Going forward, the low supply and steady demand should help support oil prices at the current price range.  The caveat being an increase in supply due to U.S. shale producers.  At current price levels, production is becoming profitable again, and we would anticipate a decline in oil prices if U.S. production increases.  The Fed will continue to tighten monetary policy by raising the Federal Funds Rate and reducing the size of their balance sheet (policy normalization plan).  We expect two to three rate hikes in 2018, but would not be surprised if a fourth-rate hike were needed to keep the economy from overheating later in the year.  The transition for new Fed Chair Jerome Powell should be seamless as he is expected to continue many of the strategies of his predecessor.  Congress passed a significant piece of legislation late in 2017.  The 2017 Tax Cuts and Jobs Act is scheduled to change the U.S. tax code to benefit both households and businesses.  The reduction in tax rates should provide an additional boost to economic activity, but it comes with a hefty $1.5 trillion price tag over the next ten years.  Details of the tax reform have been summarized and included as a supplement to this newsletter.

The international outlook is encouraging.  Stronger economic conditions are prevalent across Europe and Asia.  Positive momentum should continue in the Eurozone area despite some political hurdles.  Weak growth in the UK is expected, but accommodative monetary and fiscal policies should soften some uncertainties related to BREXIT.  The Abenomics policies of monetary easing, fiscal stimulus, and structural reforms are producing positive results in Japan, but government debt is a growing concern.  Export growth and preparations for the 2020 Olympic summer games should provide an economic boost, but a long-term comprehensive strategy to address fiscal stability and reduce government debt is needed.  Economic growth in China should remain resilient. Policymakers continue to rebalance the country’s economic model while managing high debt levels and risks in the housing and property market.  Emerging markets are poised for another successful year.  We anticipate some divergences in financial outcomes, but stronger fundamentals and attractive valuations should continue to drive growth.

There are still plenty of risks in play that can derail the global economy.  Fiscal and monetary policies, restrictive trade, unsustainable asset prices, elevated debt levels, energy price shocks, Brexit negotiations, China’s growth, extreme weather events, natural disasters, cyberattacks, terrorism, and escalating geopolitical tensions are a few that come to mind.  As always, we remain watchful!

The past eight years have been a profitable period for investors, but the cyclical nature of the financial markets reminds us of an important lesson.  Eventually, the market’s good fortune will end.   Sir John Templeton made a great observation about bull markets.  He said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” 

 A popular stock market prediction theory that makes the rounds this time of year is the “January Barometer”.  Basically, it states that the performance of equities in the first month of the year signals how the market will perform for the full year.  While a weak month of performance in January is not a good indicator of what is to come, history has shown that a first month filled with positive momentum and bullish sentiments (fueling stock demand) is a much stronger indicator for positive year end performance.  Another popular theory is the “Super Bowl Indicator”.  The basics of this concept state that if a team from the original National Football League (before the NFL/AFL merger) wins, it will be a positive year for the market, and if a team from the original American Football League wins, it will be a down year for the market.  Surprisingly, the results of this prediction theory have been fairly accurate over the years.  These so-called market indicators provide entertaining folly, but prudent investors recognize the unreliability of an investment strategy based on predictive theories.

As I have often stated, our investment philosophy remains based on the fundamentals.  We believe it is time---not timing---that matters most.   History shows the successful long-term investor is patient, weathers market swings, and adheres to a disciplined investment process that includes a diversified asset allocation strategy based upon a tolerance for risk and need for return.

During the past year, I was pleased to be included in the following publications: 2017 Memphis Magazinelist of Five Star Wealth Managers, the 2017 Medical Economicslist: Best Financial Advisors for Doctors, and the 2017 Dental Practice Management/Dental Products Report:Best Financial Advisors for Dentists.

Your financial health is important to us, so consider making a New Year’s resolution to revisit and update your financial plan.  It is also a good time to review your estate planning documents for an update if you had any personal circumstance changes. 

Common events that could necessitate estate plan alterations:

·         Birth or adoption of a child or grandchild

·         Death of a spouse or family member

·         Marriage, divorce, or re-marriage

·         Illness or disability

·         Child or grandchild reaching the age of majority

·         Education funding

·         Death of a guardian, executor, trustee

·         Retirement

·         Sale of a home or business interest

·         Large gift or inheritance

·         Revisions in federal or state income tax or estate tax laws

As our firm enters its 35th year of providing advisory services, we want to wish you and your family a happy, healthy, and prosperous New Year.  Should you have any questions, or wish to receive William Howard & Co.’s SEC Registration Form ADV Part 2A and Part 2B Narrative Brochure, please let us know.  

In closing, I want to thank you for the opportunity of working with you and for your continued confidence and trust.  Please call me to discuss any questions, or contact our office to set up an appointment to review any changes to your financial situation. 

With kindest personal regards, I am

Very truly yours,


[1]Source: Federal Reserve System, FOMC statement, December 13, 2017.




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