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March 13, 2017 - What a Difference Eight Years Makes

| March 13, 2017
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After at least four consecutive weeks of growth, the three major domestic indexes all lost ground this week. The S&P 500 was down 0.44%, the Dow lost 0.49%, and the NASDAQ declined 0.15%. Meanwhile, international stocks in the MSCI EAFE grew by 0.38%.

This week, the Fed meets to determine whether or not to raise benchmark interest rates for the first time in 2017. Right now, the market gives a 93% chance of a rate hike. In this update, rather than analyzing what lies ahead or what happened last week, we would like to acknowledge just how far the U.S. economy has come since 2009.

On March 9, we marked the 8-year anniversary of when markets during the Great Recession hit the bottom on their lowest day. At that point in the economic meltdown, the Dow and S&P 500 had both lost more than 50% of their value since October 2007. Every investor likely remembers the fear that gripped the U.S. and global economies, as questions lingered of how low we could go.

Today, we can see just how far the markets have rebounded since then.  Take, for instance, the S&P 500.

On March 9, 2009, the index fell to 676.53. Eight years later it rebounded to 2364.87. With reinvested dividends, that growth represents an average annual increase of 19.45%. 
Of course, no one can predict exactly when this bull market will begin to decline. And at 8 years old, only one recovery has lasted longer since World War II.
As of today, the S&P 500 Cyclically Adjusted Price to Earnings ratio, otherwise referred to as CAPE or the Shiller P/E, a ten year moving average of the P/E ratio, is on par with 1929. It has only been surpassed in the late 1990's tech boom.  However, even though current valuation measures are not as extreme as in 1999, today's economic underpinnings are not as robust as they were then.  Today's P/E ratio therefore might be more overvalued than those observed in 1999.  Economic growth in the late 90's was more than double that of today, and the expected trend for economic growth was also more encouraging. The current ratio of CAPE to GDP growth of 19.8 has far surpassed the 1999 peak. At the current level, it is over three times the average for the last 66 years. Further, based on data going back to 1900, the only time today's ratio was eclipsed was in 1933.  
 
In addition, various measures of debt have ballooned to levels that are constricting economic growth and productivity. The amount of debt that needs to be serviced stands at overwhelming levels and is growing by the day. Policies that rely on more debt to fuel economic growth such as Pres. Trump's proposed infrastructure spending, are not likely to help.  Given such a stagnant economic outlook, we hold little hope that substantial economic growth can be sustained and conclude there is little justification for paying such a historically steep premium in the stock market for what could likely be feeble earnings growth for years to come.  Please see other parts of our website (www.amadeuswealth.com) for our advocacy for non-correlated alternative investments for your consideration in light of these market valuations.

ECONOMIC CALENDAR

Tuesday: FOMC Meeting Begins
Wednesday: Consumer Price Index, Retail Sales, Housing Market Index, FOMC Meeting Announcement
Thursday: Housing Starts
Friday: Consumer Sentiment

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, S&P Dow Jones Indices and Treasury.gov. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.sub>


These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

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