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Equity markets moved higher in January as corporate profits continued to post solid gains along with multiple benefits from the recently passed tax reform bill becoming obvious. Bond yields rose at a faster pace than we’ve seen in a while, causing a loss for the typical bond funds and longer‐dated maturity bonds. This confirms my stance of staying away from interest rate sensitive and long‐dated funds and for keeping maturities and duration short.

The first reading on 4th quarter GDP came in at a 2.6% increase. Inventory adjustments and overseas imports/exports kept the number from being stronger. Consumer spending as well as incomes were strong. Evidence continues to point toward an improved back‐drop for economic growth.

The Federal Reserve remains on track to continue increasing short‐term interest rates. The Fed Funds target range currently sits at 1.00‐1.25% with additional increases coming. The Fed recently noted some pickup in inflation and expects conditions to warrant “further gradual rate increases” throughout 2018.

Earnings were strong in the 4th quarter and the first two weeks in February are busy with earnings announcements. 2017 was a strong earnings year and 2018 is shaping up likewise. Over time, it predominately has been the growth in corporate earnings that determines the trajectory of stock prices.

Though very little time has passed since the tax reform bill went into effect, it is hard to overstate the short‐term, positive impact that has occurred. From the repatriation of hundreds of billions of dollars from overseas, wage increases, hiring initiatives, one‐time bonuses, increased corporate profits, higher dividends….the list goes on and the impact of lower taxes on the average American worker has not yet been realized.

Fundamentals for U.S. companies remain strong. Equity valuations are not cheap, but earnings growth has made prices reasonable, as market gains and earnings growth have moved upward simultaneously. Pullbacks are not a thing of the past and will continue to be a normal function of our markets. However, as long as economic and earnings growth continue to show strength, any market pullback should be short‐lived.

Best Regards, Clay

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