November 11, 2016 Letter to Clients

Position for the Expected, but Plan for the Unexpected

As a father of 3 children who are involved in various sports, I think of my trunk as the “just-in-case” space in my car. My family logs many hours and miles on the road and it’s a rare weekend when we are not traveling from one game to the next. Being in New England, where the weather can shift quickly and we must be prepared for the unexpected, my trunk is always packed with chairs, blankets, umbrellas and rain jackets. As a financial advisor, I understand that the global markets and world economies and can also be unpredictable, so I think carefully about where we may be headed and what may be needed.

An election year, such as the one we just experienced, certainly makes planning even more of a challenge. Since the creation of the Fed in 1913 and prior to this election, there has been 26 presidential elections. Fourteen were won by Democrats and 12 by Republicans. History tells us that the outcome won’t have a significant impact on the stock market’s performance because other economic performance and factors tend to have a greater influence over time. While not everyone agreed on who should become our next president, I think we can all agree this was not a typical presidential election and this race captured the attention of many more Americans than previous elections have

Election Outcome and Impact on the Market

With Donald Trump emerging victorious in the presidential race, many investors may now be wondering: Now what and how will the election results impact my portfolio? The short answer is probably not as much as some investors might think. More important than the election outcome is the ultimate policy landscape and the implications of those policies for business, economic, and stock market cycles. The policies implemented by the government generally have a more direct impact on corporate earnings, business profitability, and consumer confidence than the person sitting in the Oval office. Additionally, more often than not, what is promised on the podium becomes a watered down reality.

Recent history illustrates this point well. Former President Ronald Reagan and President Barack Obama both inherited difficult economic and market conditions. They pursued very different policies, yet equity markets delivered strong performance during their tenures. This strong empirical evidence illustrates that the combination of policies and market cycles may matter significantly more than who is president.

That said, we cannot discount the element of uncertainty. Donald Trump’s appeal as an outsider, a person who could bring a different voice to Washington, implies change, and with change comes that uncertainty. While investors and the market do not like uncertainty it can create opportunities for investors who stay disciplined and reward them for avoiding emotion-fueled selling. We need to keep in mind that television coverage, front-page headlines, and social media are likely to focus on the negative. As I’ve stated in the past, it is my position as your financial advisor to tune out media noise and keep focus on the important facts and data that will help you reach your short-, intermediate- and long-term goals.

Recapping, Watching and Looking Ahead

In our last letter, we discussed the fact that we have been in a sideways market for the past two years. We recognize that this can be frustrating for investors who may not be seeing the performance numbers as in previous markets, especially during the bull market of 2009-2013. In these past two years many investors have seen substantial volatility driven swings in their portfolios. Anticipating this volatility, I made the decision to be proactive and take a more defensive stance, so our clients did not endure the wild swings and substantial losses of the major indexes. The roller coaster ride was particularly scary for many investors as 2016 got off to the worst start in the stock market’s history. Throughout the year, market volatility has been inspired by slower growth in China, oil price movements, geopolitical shocks (like the Brexit vote), central bank policies, and investor emotion.

Markets may continue to experience some volatility; however, U.S. economic data has been relatively strong and supports the idea that the Federal Reserve will increase interest rates in December. For example,

The September report from the Bureau of Labor Statistics showed that employment remains on solid footing with a 156,000 gain in payrolls. This marked the 72nd consecutive monthly increase. That’s the longest uninterrupted stretch of job growth on record. The price pressures of goods and services continue to work their way up to the Fed’s target level of 2.0% The economy grew by 2.9% annualized in the third quarter of 2016, the strongest rate of growth in two years. Importantly, this showed the economy improving from the previous three quarters’ sluggish rates of growth. Since the recession ended, the economy has averaged 2.1% growth.

Though US equity markets have demonstrated resiliency since the global financial crisis, political challenges in the United States and abroad have contributed to bouts of market volatility, and we believe this election will likely have the same effect. During the past 8 years, we’ve found that the underlying strength of the US economy supported by positive corporate and consumer fundamentals has been a key driver for value creation. I believe the health of the US economy, in concert with corporate earnings, dividend growth and consumer employment and spending trends, should be a significant factor for future market returns. However, it is important to recognize that Trump’s trade agenda could alter the path to growth for multi-national corporations, casting doubt into many investors’ minds about the sustainability of market resiliency. What remains to be seen is where the new administration will focus their efforts and how the policies will take shape.

With all that said, my goal is to build portfolios that help protect our clients from the vagaries of the market and also help them reach their financial goals. As your financial advisor it is my role to balance mitigating portfolio risk with potential reward. This is a task and responsibility I do not take lightly therefore I perform extensive due diligence in selecting investment providers based on rigorous standards, including consistent investment philosophy, strong processes and controls, and portfolio performance. After completion of this process, and if I think a portfolio change is necessary and potentially beneficial, my office will be contacting clients to discuss. I also welcome the opportunity to listen to and discuss any questions or concerns you may be experiencing. You as a client are welcome to contact my office to schedule a time to meet or have a phone call to touch base.

As always, I thank you for placing your trust and confidence in LePage Financial Group and you have my word that both myself and staff will be keeping clients apprised of how we plan to navigate America’s new policy landscape. If I don’t have the opportunity to speak to you before Thanksgiving, I wish you and your family a wonderful holiday.

Oh and by the way, my kids occasionally have a laugh at all those “just-in-case” items I keep in our trunk- and we don’t need them all the time. However, I stand by the need to be prepared to the best of my ability, be it for the weather or economy, and I can only hope that they acquire this same trait themselves when older.

Key Issues and Potential Economic Impact : President Trump





· Reopen trade agreements

· Impose tariffs on goods from China and Mexico


Tax Reform

· Broad rate-lowering reform

· Limiting or elimination of personal deductions and estate tax

· Maintain investment-related tax rates


Fiscal Policy

· Boost infrastructure spending



· Tax plan and fiscal plans would reduce federal receipts; increase federal debt over decade



· Reduced or eased regulation

· Raise the minimum wage

· Repeal Dodd-Frank financial regulation

· Overturn elements of the Affordable Care Act


Monetary Policy

· Select new Fed Chair



· Supportive of legal immigrants

· Stricter boarder control and tougher refuges vetting


Source Of Information: BNY Mellon

Investment Outlook and Strategy




Slow Pace of Growth in U.S.


· Core consumer prices, excluding food and energy, increased 0.2% in August and 2.2% year-over-year

· Mixed housing data and retail sales decline modestly. Consumer confidence registers highest level since recession

Brexit’s Impact on Region Still Uncertain

· UK retail sales and consumer sentiment hold up over summer

· UK business optimism down but industrial production positive

· The Markit Eurozone manufacturing PMI of 52.6 for September, the strongest reading for three months

Broad Measures of Growth Improve in China

· Manufacturing Purchasing Managers’ Index (PMI) came in at 50.4 for September

· Industrial production rose 6.3% year-on-year in August, and retail sales beat expectations in August with growth of 10.6% compared to a year earlier

· Fixed asset investment, a proxy for longer-term spending, grew 8.1% year-on-year through August

Central Banks Remain Accommodative

· Fed leaves rates unchanged, in September, but implies rate hike later this year

· ECB leaves rates unchanged opting to monitor the impact of Brexit before taking action

· The Bank of Japan attempts a new approach to boost growth and inflation

· Bank of England holds steady at 2 basis points in September





Bond Returns Mixed

· 10-year Treasury note yield fluctuated throughout the month, but ends near where it began at 1.6%

· Returns: Barclays Aggregate Index: -0.1% September /

· 5.8% YTD; high yield bonds 0.7% September / 15.3% YTD; emerging market debt (in U.S. dollars) 2.0% August / 17.1% YTD

Equities Move Sideways

· Global equity markets delivered modest gains, with emerging markets leading the way

· Returns: S&P 500 0.02% September / 7.8% YTD; MSCI EAFE 1.2% September / 1.7% YTD; emerging markets 1.3% September / 16.4% YTD

Volatility Likely to Increase

· U.S. presidential election likely to cause up tick in volatility





Neutral on Equities

· U.S. equities expected to be more resilient given rebound in oil process, modest growth and accommodative Fed

· Given slowdown in growth as a result of Brexit and potential pullback in business spending, reduced exposure to international developed equities

· Despite rebound, least optimistic about emerging market equities in light of more cautious growth concerns

· Near-term pullback possible; may look to add to equities on further weakness

Global Yields Lower for Longer

· Global yields lower for longer as global growth remains challenged

· Maintain core portfolio of high quality intermediate-term bonds with modest exposure to higher yielding sectors

· Diversification, duration and yield curve management continue to be important

Incorporate Lower Correlated Investments

· Utilization of lower correlated strategies, such as managed futures and long/short equity, important for diversification and downside protection as volatility expected to persist in light of uncertainties around Brexit, U.S. election, geopolitical tensions, China’s growth path and corporate earnings

 Source of Information: BNY Mellon



Steven LePage

These are the opinions of Steven LePage and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Diversification and asset allocation strategies do not assure profit or protect against loss. Investing regular amounts steadily over time (dollar-cost averaging) may lower your average per-share cost.