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Lindsey Report – January 2017


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Happy New Year and Happy 2017! The equity markets have certainly expressed optimism about the potential for 2017, as The Dow, S&P 500 and other domestic indices capped off 2016 with a nice rally. The recent equity rally has been largely driven by a belief that the new administration will be pro-business and anti-regulation. As markets typically look six-nine months out, they are suggesting that these “anticipated policy changes” will be a boost for the domestic economy. It also suggests that we may experience rising interest rates in the coming quarters.

As noted in the past, a diversified portfolio may have exposure to a variety of investment vehicles. This could include domestic and foreign stocks, corporate and government bonds, real estate and the list goes on. Therefore, the impact of any rally in the Dow or S&P 500 would depend upon an individual portfolios exposure to the stocks that comprise these indices.

Nonetheless, the balance of this letter will focus on the Dow Jones Industrial Average (commonly referred to as the Dow). I’m highlighting the Dow because it is on the precipice of a major milestone: Dow 20,000 (AP). My guess is that you have heard. I surmise that the Dow is the most followed domestic stock index and the most discussed around the water cooler.

However, I also surmise that the scope of the Dow is likely misunderstood by many investors. When the Dow Jones Industrial was created in 1896 it was comprised of 30 large publicly-owned U.S. companies (Wikipedia). As publicly trading stocks was in its infancy, using 30 large companies likely represented a significant portion of a day’s trading.

Now, fast forward to 2017 and the Dow is still comprised of just 30 large U.S. companies. While these 30 are huge and well-known, they represent a very, very small number of companies being traded on a daily basis. Therefore, it is a narrow measurement of the equity markets.

Still, it is important because its 30 companies span much of our economy and it has a broad psychological impact. Therefore, I’m hoping for 20,000+, but keeping in perspective.

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.

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