Financial Industry Insights from Advisors Asset Management


Bahl & Gaynor’s Market Review: Observations From the Quarter Just Ended

After the 2016 Presidential Election confetti was finally swept away and champagne bottles recycled by Trump supporters, an economic normalization process kicked off in the 2nd quarter of 2017 (2Q2017). The Administration is attempting to follow through on many major economic campaign elements with the introduction of legislation seeking to add consumer and business clarity if and when implemented. Coupled with actions the Fed is anticipated to implement, Washington will again be at the epicenter of much media and investor attention over the balance of full-year 2017 (FY2017).

In addition to policy outcomes, international oil markets have also been a key focus of investors in 2Q2017. Oil prices have weakened dramatically, declining approximately 20% (WTI/West Texas Intermediate) on a YTD (year-to-date) basis amid higher supplies from foreign and domestic geographies. While this is wonderful news for non-Tesla owners at the gas pump, lower oil prices have pressured many companies with direct and indirect exposure to the Energy sector.

Lower energy prices have also exerted downward pressure on inflation readings which, in turn, has precipitated lower long-term interest rates. While the Fed is indicating a willingness to move short-term rates higher this year, longer-term rates (the 10-year U.S. Treasury Note, for example) have drifted lower to the 2.20% to 2.35% range. This is consistent with Bahl and Gaynor’s “lower for longer” thesis regarding rates. Aside from the aforementioned sector and industry-specific pressures, the current not-too-hot, not-too-cold environment has been supportive of capital markets.

Strong earnings growth posted during 1Q2017 among S&P 500 companies is anticipated to continue in 2Q2017 with an +8.0% to +10.0% advance expected versus 2Q2016 reported results. This is supported by expectations of modest domestic GDP expansion in the +2.25% to +2.75% range continuing possibly into 2018. Somewhat slower GDP growth in the United States is accentuated by relatively more robust trends contributed by foreign-sourced earnings among multinational companies in the S&P 500, yielding the high-single-digit midpoint of expected earnings growth for FY2017. Fully 40% of the S&P 500 aggregate revenue stream is generated from foreign sources with strength from Europe and emerging markets playing an important role so far this year.

The growing gap between soft data – such as consumer and business sentiment surveys – and hard data – such as consumer home and auto purchases – became more pronounced during 2Q2017. Consumer demand remains strong as low unemployment and interest rates, rising wages, low inflation and rising home prices have proven to be a powerful and constructive combination of drivers for this metric. Business spending beyond personnel has been stalled for some time. Tax reform could be a catalyst in providing a new set of incentives for more robust business spending growth in the quarters ahead. With the health of the consumer and corporate America solid, there are few visible signs of stormy economic summer weather on the radar at present.

Bahl & Gaynor’s continued focus on quality, strong company-specific fundamentals and tangible investor remuneration support the important benefits we seek to deliver in our investment approach: attractive current and growing income, investor capital safety in the form of downside protection and favorable risk-adjusted returns as a result of the first two achievements. While the year ahead will be influenced by a combination of economics and Washington policy, it is often the unforecasted events that derail markets and investors lacking discipline of approach. Bahl & Gaynor’s structured and time-tested approach seeks to provide a smoother ride along the inevitable peaks and valleys of capital market fluctuations. In our minds, reliable income provides for more reliable outcomes, a powerful ally to place in the distance between client capital and black swans adrift in the waters of uncertainty.


CRN: 2017-0719-6046 R

Opinions in this piece are those of Bahl & Gaynor and are not necessarily that of AAM.

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit



Effective, June 10, 2016, please note that Gene Peroni left Advisors Asset Management (AAM) to become President of Peroni Portfolio Advisors, Inc. Peroni Portfolio Advisors, Inc. ("PPA") is an investment advisor independent of AAM.


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