Broken Record – Another Record Broke

The end of another week has brought yet another all-time high for equities.   This marked the fifth week in a row that the market has closed at an all-time high. To try and put these numbers in perspective, the aggregate market capitalization of the S&P 500 on election night was $18.5 trillion (t) and closed last week at $21.9t, a gain of $3.4t in market cap from 500 of the largest U.S. companies. Assuming the current population of the U.S. is around 323m people, the additional market cap gained since the election by S&P 500 is more than $10,000 for every man, woman and child in America. These numbers equate to a return of 21.6% since the beginning of the “Trump Trade” as it approaches its 1 year anniversary.

The interest rate yield curve flattened during a busy week that included the release of Fed minutes and inflation data, strong demand for 30-year U.S. Treasury bonds and heightened geopolitical risk. The release of the Fed minutes on Wednesday showed that Fed officials expect to raise short-term interest rates once more in 2017. Following the release, the spread between the 5-year and 30-year Treasuries narrowed to its lowest level since 2007.

Looking ahead to next week, earnings season kicks into high gear as 58 companies within the S&P 500 are expected to announce third quarter results. The week will also bring the release of a number of economic reports surrounding manufacturing, industrial production and home sales

The S&P 500® Index was up 0.2% for the week. The top-performing sectors in the S&P 500® Index included Consumer Staples (1.5%) and Utilities (1.3%) while bottom-performing sectors included Financials (-0.9%) and Telecommunications (-4.6%).  In the fixed-income market, the 10-year Treasury yield was down during the week, ending at 2.3%.

We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.

Favorable Odds

E-Trade Financial Corporation (ETFC), a financial services company, provides brokerage and related products and services primarily to individual retail investors.

ETFC has been under the direction of new leadership since the beginning of 2013. Since that time, ETFC has been able to achieve consistent growth of accounts and assets while decreasing the size of its troubled legacy home equity loan portfolio.  Over the next few years, we believe a stable economy and improving housing market will accelerate ETFC’s ability to eliminate the remaining portion of its legacy portfolio.  This change in operating structure will allow ETFC to focus on its core business, online brokerage, where the company is taking share away from traditional brokers.  We believe ETFC has the flexibility to grow profits higher than expected and therefore return capital to shareholders through share buy backs and dividend payments.  For these reasons, we have added ETFC to our portfolio as we believe the company represents favorable odds for our portfolio.