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2nd Quarter News

Students of stock market history know that the long-term trajectory of equities has been upward. Sometimes, however, there are valleys. At Hudson Advisors, we predict that we could be looking at some valleys – technically known as “corrections” – in the period ahead.

This viewpoint reflects the caution that we have expressed since the outset of 2017. Yes, we acknowledge that the first half of 2017 was a banner time for stocks – with some indexes hitting record high levels. But we do not see evidence to support continuation of that bull market. To the contrary, we are more likely to see a pull-back in the months ahead.

What explains our caution? The U.S. economy is in the same modest growth box of recent years. The idea of a “Trump bump” looks problematic. The impasse over health care legislation does not bode well for the initiatives on tax reform and infrastructure investment. Most important, stocks are now richly priced. Corporate earnings look positive – but not strong enough to drive stock prices higher.

In short, we forecast the markets to have some valleys before the end of the year. We expect some pause and retreat from the stellar first half of the year. We are not talking about a sustained bear market here. In fact, the market may bounce around and end close to its current position. But, to be cautious, we are moving to place client portfolios with a short investment time frame into defensive positions. We also are prepared for a test of our skills as “stock pickers” who can find selective growth opportunities.

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