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U.S. equity prices continued to move higher in February, furthering the market rebound from the December sell‐off. International stocks also climbed higher, though to a slightly lesser degree. Interest rates ticked a bit higher which muted bond returns, though higher yielding bonds made gains.

The Federal Reserve continued its rhetoric regarding its stance on future interest rate hikes. Chairman Powell stated that the Fed Committee will no longer guide markets toward a hike, but will be patient as it determines what future adjustments may be appropriate. Basically, he confirmed that the Fed is not on a pre‐determined course and will make interest rate changes as necessary. This “data‐dependent” approach is much more market‐ friendly than the Fed’s previous pre‐determined rate hike mode.

The first reading on 4th quarter GDP showed a growth of 2.6%, which was a bit better‐than‐ expected. Wages for U.S. workers increased by 3.5% over the past year, while the number of workers is an all‐time high. Trade negotiations with China are still in the works, as progress seemingly is being made with the talks having become more diplomatic.

Employment numbers continue to be strong. Tight labor markets are attracting workers back to the labor force, which should help contain wage and price inflation. The three‐month average in net monthly jobs gains is around 240,000.

Earnings mostly came in ahead of expectations in the latest round of reports, though expectations for continued strong growth have been tempered. It should be obvious to analysts that after 2 consecutive years of 20+% earnings growth that there will be a moderation in earnings, and a moderation is perfectly normal. Even with the markets facing heightened volatility, fundamentals for U.S. companies remain solid. The S&P 500 now trades around 16x forward earnings, which is an attractive valuation. Balance sheets are strong, dividends are increasing, and earnings growth, though not 20+%, remains intact. There certainly will be bumps in the road, but as long as these current fundamentals remain in place, the markets are in a position to post further gains.

Best Regards, Clay

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