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Political Risks Rise. Why are Markets Rallying?

Political headlines have gripped investors over the past year, including last week with the appointment by the Justice Department of a special counselor to investigate the 2016 Presidential election.

Indeed, a common question from investors is why the stock market continues to perform well in 2017 despite the Trump administrations uncertain progress on its economic agenda. After all, arent expectations for tax cuts, deregulation and stimulus the reason for stocks rallying since the election?

Our answer is to remind investors that economics and corporate earnings outweigh politics in driving financial markets. Indeed, corporate earnings have performed surprisingly well this year, rising 16% in the first quarter the fastest pace since 2011. Likewise, improving global growth is expected to boost depressed overseas earnings by 37% over the next 12 months.

Meanwhile, many so-called “Trump Trades” have reversed this year. Small cap stocks and the dollar two domestically focused trades — surged after the election, but have erased those gains in 2017 (bottom chart). This suggests that markets are attuned to political uncertainty and are reacting appropriately.

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This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.
Investment Advisory Team
Hefren-Tillotson

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Hefren-Tillotson Inc. is a leading diversified financial services firm providing investment and retirement plan management and comprehensive, financial planning through MASTERPLAN® for individuals and businesses. The firm’s wealth management services are administered by Certified Financial Planner (CFP) professionals, Chartered Financial Analyst (CFA) Charter holders, attorneys, Chartered Life Underwriters, and CPA/PFS’s. Hefren-Tillotson offers corporate services including 401(k) retirement planning, executive financial counseling, fiduciary reviews and workplace financial planning seminars. Founded in 1948, the firm is headquartered in Pittsburgh and has offices located in Pittsburgh, Butler, Greensburg, North Hills, and South Hills.