The recent passage of tax reform has raised the expected level of S&P 500 earnings.  Looking forward, Price/Earnings ratios have declined on a forward or normalized earnings basis, thereby raising the upside potential of the S&P 500.  In simple terms, tax reform should benefit markets and provide opportunity for growth.  We reckon the initial effects of tax reform will be 2018 earnings growth moving from around 10% to upwards of 18%.  This momentum should persist into 2019 and 2020 as lower tax rates and higher depreciation reduce the required breakeven returns on investment.  Economic growth should benefit from great capital investment and higher share employee productivity.

What does all this mean for stock portfolios?  From our perspective, this configuration creates a chain reaction.  Higher growth creates higher earnings; normalized earnings move faster; price to earnings are lowered which remove pressure from valuations.  Our opinion is a market with more sustainable upside potential.

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Home Prices Healthy

The S&P/Case-Shiller National Home Price Index for October 2017 showed home prices moving higher by an impressive 6.2% year-over-year. That’s the highest rate of growth since June 2014. Price hikes should moderate and settle in the 5.0%-5.5% growth range. This forecast is based on several leading industry supply and demand indicators; inventory levels and new home sales. According to the U.S. Census Bureau, new home sales are running at a solid 733,000 per year rate, up from 400k in 2012 but well below bubble territory just above 1,000,000.

There are risks to this moderately bullish outlook. Affordability could be a problem if employment trends stall. As well, borrowing costs may rise due to the Fed’s rate-hike campaign and fiscal stimulus. These factors will likely prevent house prices from soaring at a double-digit rate any time soon. White-hot conditions aren’t always conducive to sustainable long-term growth in the industry so some moderation in pricing is most likely a good thing. After all, real estate has been a long-time foundation for U.S. GDP growth.

Low Rates Likely to Persist

A surge in global bond yields is contributing to the rotation into riskier assets. As little as a week ago, however, bond investors and traders were once again dealing with volatility across the maturity spectrum.  Yields plummeted in the wake of Brexit and the fall continued through last week.  Generally, when yields fall (bond prices rise), it is a sign of risk aversion as investors pile into the safety of government backed securities.  This time around, stock prices rallied simultaneous with bonds.  This is an interesting divergence and one that warrants our full attention.  Additionally, spillover investing from other countries is part of the low yield continuation.

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The S&P/Case-Shiller National Home Price Index for January 2016 showed that prices gained 5.4% year-over-year for the month, the 43rd consecutive month of year-over-year growth since prices turned up in June 2012. The January growth rate was in line with the December rate and slightly higher than the average rate over the past year. Looking ahead through 2016, we anticipate home prices rising in the 4.5%-5.5% range.

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S&P/Case-Shiller Home Price Indices, arguably the leading measure of U.S. home prices released data today for June 2015. The results show that home prices have continued their rise across the country over the last 12 months. Comprised of nine U.S. census divisions, the latest numbers show a slightly higher year-over-year gain with a 4.5% annual increase in June 2015 versus a 4.4% increase in May 2015. The 10-City Composite showed a marginally lower gain of 4.6% year-over-year and the 20-City Composite was virtually unchanged, rising 5.0% year-over-year.

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Housing
The S&P/Case-Shiller Home Price Index of 20 major U.S. markets is one of the most respected and closely watched barometers of the housing market.  Recent data showed average home prices rising 4.9% year-over-year in April, the 32nd consecutive month of year-over-year growth since June 2012. The April rate was slightly lower compared to March, but solidly ahead of rates posted in late 2014.

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Divorce among people 50 years and older has become so commonplace, the pundits have even coined a phrase for it, “Grey Divorce”.
Historically, people and especially older people disdained divorce.  In 1960, for example, only about 1.5% of those older than 65 years had been divorced at least once, according to Census data.  Today, close to 20% of those older than 65 have dissolved at least one marriage, again according to Census data.

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Whether amicable or contentious, going through a divorce can be extremely tense, and the process can impact every dimension of your life. Often, finances, especially in times of emotional turmoil, are not a main concern.  A lot of opportunities are missed and a lot of mistakes are made.  If you are considering a divorce, it is vital to plan for the dissolution of the financial partnership in your marriage.  Such dissolution involves dividing the financial assets you have accumulated during the years of marriage.

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“Do what you can, with what you have, where you are.”—Theodore Roosevelt
“After his humiliating election defeat in 1912, Roosevelt embarked on the most punishing physical challenge he could find, the first descent of an unmapped, treacherous, and extremely dangerous tributary of the Amazon.  Together with his son Kermit and Brazil’s most famous explorer, Cândido Mariano da Silva Rondon, Roosevelt accomplished a feat so great that many at the time refused to believe it.  In the process, he changed the map of the western hemisphere forever.

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Self-employed individuals face a number of challenges independent of “running their business”.    One of the greatest challenges is selecting a retirement plan that meets the unique needs of their company.  Until recently, self-employed workers were limited in the ways they could shelter their income and save for future goals.  Most would choose to use a Simplified Employee Pension (SEP) as it was easy to establish and the most popular amongst their peers.  In recent years, however, a compelling alternative to the SEP has emerged, the Individual 401(k).

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