[fname], I want to share with you (below) our 2017 stock market Annual Update and Outlook from our Financial Services Division, "Sullivan Wealth Management", here at Sullivan & Company CPAs.  In case you didn't know, I am an IAR or Independent Advisor Representative and the RIA or Registered Investment Advisor we work through is the Archer Investment Corporation, who generated the Mid-Year Update and Outlook for us.

 

Now if you are not already an investment client with us, you may wonder why your accounting firm wants you to invest with them.  Well years ago, CPAs were not allowed to venture into the investment world, but it always bothered me to see how poorly our clients were treated at their broker. It is not that the broker was not nice or attentive; it was the quality of the investments and, oftentimes, the lack of understanding for how the investments were going to affect the client in the future.

The amount of commissions and fees were oftentimes much larger than the client realized. Principles taught in universities were ignored by greedy advisors. Some forward thinking CPAs worked hard to get the accounting industry to see that we could, at the least, counsel our clients so that their investing experience was successful.

Our function is to work with you in all areas of your financial life. We prepare your tax returns and financial statements, of course, but there's a lot more decisions you make that we should be involved in. These include: succession planning for business owners such as HOW TO:

1) Sell your business
2) Retire comfortably
3) Handle your finances now that you are divorced or widowed
4) Provide for loved ones if you die
5) Pay for the education of your children
6) Determine if a trust is right for you
7) Minimize estate taxes

Worse than hearing that the IRS is going to audit is the call from a client who has plunged into an investment, whether stocks, bonds or another home without consulting us first.

Sometimes these decisions have unfortunate results and are difficult or impossible to undo. So, in response to this need, your CPA firm has well trained accountants and financial services professionals to help you navigate the financial world..

For a free review of your investments, give me a call at 301 657-8080 X 102.  

 

Thanks, Paul

 

 

 

 

 

 

9000 Keystone Crossing # 630
Indianapolis, IN 46240
www.thearcherfunds.com


click here to download this report in a PDF format

 

Archer 2017 Annual Update and Outlook:

 

At the start of 2016 we anticipated the market to move higher by 5-7%. We looked pretty accurate until the election turned in results that many were not expecting. The water under the bridge kept moving so let's do the same. Typically from November through April of an election year we see an average 10.3% return in the market since 1926. From November 2016 through this writing on January 4, 2017, we have seen returns of approximately 7.5% in the S&P 500! Whether this takes some steam out of 2017 total return or not is yet to be determined. We will examine why the market should move higher and what role interest rates will play in 2017. Most importantly what will earnings report in 2017? Will earnings break out of this 2015-16 Rip Van Winkle nap?

If you recall in October, confidence in the stock market was waning even with unemployment at anemic levels. We heard doom and gloom consistently out of the talking heads on TV. Now with the election behind most of us, we can focus on earnings growth in the US. Yes, with this President, we are going to see constant headline risk (or Twitter risk), but with this comes some relief in regulation for the financial industry. Any bull market needs financials to perform well if it is to be long-lived. In this case higher rates and less regulation may propel financials higher.



The previous table shows how weak earnings were in 2016. Much of this was attributable to energy as shown in the table below. For 2017, we see Energy returning some of its earnings growth which could propel overall earnings much higher in 2017. In fact, the current estimates are for some double digit earnings growth for the S&P 500 in the latter half of 2017.


However, one statistic we just can not ignore is the prognostication coming from the elite on Wall Street. We know how accurate they are every year! (Hear my sarcasm). For 2017, the experts are predicting a 5% return on the S&P 500. Now that number may not seem too far-fetched. However, for the last 17 years these same experts have predicted 9.6% returns on average and the end result was only a 4.2% return. This is not even close. They have been overly exuberant about returns.



The reason I mention this exuberance about returns: 2017 will represent the smallest gap between the most optimistic estimates and least actual results since 1999. We all know how 1999 ended. I think these estimates tell us there is going to be much more volatility in the stock market in 2017-18. There will be some bumpy rides as everyone jumps and climbs with every headline or tweet.

We can see in the next graph the volatility we experienced in 2015 and 2016. I don't like looking in the rearview mirror, but it is important to note that 5% moves up or down in the market are to be expected in 2017 and beyond.



Let's move on to interest rates. We have seen the yield on the 10 year Treasury Note move up 100 bps to over 2.5% since the election. Many are speculating a move upward in interest rates would ruin any chance of the stock market moving higher. Not so fast. Stocks and interest rates can sometimes go up together as they did in the mid 50's up to 1970. The one thing we don't want to see is interest rates move too high too fast. We expect the Fed to move rates higher at least twice in 2017 and probably three times. This will be a positive for financial institutions and property and casualty insurers. Likewise, deregulation could boost profits for financial firms and many other companies. The table below shows 12 episodes of bond yields rising and the stock market rising as well. Often times, interest rates are moving higher because the economy is doing well; as is the case this time. The US Manufacturing PMI for December came in at 54.7% which says the economy is doing better than OK. With numbers strongly above 50, we see little chance of an economic downturn in the first half of 2017.
 

 

With PMI here at home approaching the mid 50's and world PMI above 50 now we could start to see inflation creep in and move above the average Consumer Price Index (CPI). We will look at the last 46 years and half of the years are lower than the median and half are higher. The average annual returns were positive except for commodities in low inflation years (the lower 23 years). In higher inflation years commodities increased 22% annually vs. -1.9% in low inflation years. So we might expect higher oil prices and gas prices for 2017 if we assume CPI/Inflation are higher than normal. We expect oil to hover around $62 per barrel in 2017. This level will not be enough to derail the economy, but enough to return profitability to the energy sector which should be another positive for the stock market in 2017.

As we keep discussing sectors such as financials or energy, we think it makes sense to look at how sectors perform annually in different years of an election cycle. We all know Health Care struggled in 2016 and was essentially flat for 2015 and 2016 combined as Washington took their pound of flesh from the industry by claiming they were the cause of high insurance and health care costs. Folks, we are aging as a society and we all want to live longer with new drugs. This costs money! I do think making insurance companies compete across state lines will also drive down costs. This may be a possibility if the new administration finds a way to adjust the Affordable Care Act and make it more Affordable.

 



Looking Ahead:

We continue to see opportunities for stocks in lieu of bonds in the next year. As we are in Election Year +1, we see good opportunities for the stock market. If earnings hold up as expected this year, the market could move 9-12% higher in 2017. Although we have discussed bonds moving lower (rates higher) it is possible with all the World's Central Banks, interest rates may be range bound as liquidity is extremely high. In addition, money supply in the US and around the world continues to grow even in the face of Federal Reserve Banks around the world raising rates.

Regards,

The Archer Team

Troy C. Patton, CPA/ABV
Steven C. Demas
John W. Rosebrough, CFA

The opinions contained herein are not intended to be investment advice or a solicitation to buy or sell any securities. Archer Investment Corporation manages The Archer Funds. You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fundís prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fundís prospectus by calling 800-800-1776 or visit www.thearcherfunds.com. Past performance is not a guarantee of future results. The investment return and principle value of an investment in the Fund will fluctuate so that an investorís shares, when redeemed, may be worth more or less than their original cost. Distributed by Arbor Court Capital, LLC, 2000 Auburn Drive, Suite 300, Beachwood, OH 44122 Member FINRA.
 


 

      Financial Services at Sullivan & Co. CPAs

Paul Sullivan leads our Financial Services Division and is here to help you navigate your financial future. As an Investment Advisor Representative, he is able to provide an independent opinion on the investments you already own or are considering buying.

 

We can structure a portfolio based on your risk tolerance or we can help you decide how to invest in your company 401(k) plan. We work with each client to identify their concerns and to provide solutions according to their situation.

Paul is also experienced in company retirement plans. If you own a business that does not have a plan; we can discuss your options and set up a plan that fits your company.

 

If your business already has a plan; we offer a free evaluation of the plan to ensure that it is up to date and working well for you and your employees.

Our goal is to provide personal, unbiased and independent advice to help you make well-informed decisions about your financial life and investments.

Contact Paul Sullivan or Chris Bailey to set up a free initial consultation (301) 657-8080.

And as always if you have any questions about accounting or investments and how they effect you or your business, please give us a call. We can help guide you in the right direction.

 

 

Remember you can call our offices if you have any questions about these or any other accounting, tax, financial planning or insurance related issues, at 301-657-8080. 

 

Regards, Paul Sullivan, CPA

President, Sullivan & Company

 

 

 

 

Sullivan & Company, CPAs | 4709 Montgomery Lane | Bethesda, MD 20814 www.eSullivan.net | email: pSullivan@eSullivan.net | Connect With Me on Linkedin

Direct: 240-316-3531 | Main no.: 301-657-8080 Ext 102 | Fax: 301-657-9055