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Market Viewpoints

by Keith Bonjour, Portfolio Manager

The stock market has been trading in a relatively flat trading range for the last quarter without breaking out of the current correction that began in February of 2018. Stocks would have to make new highs for the current correction to have officially ended. Volatility has remained elevated for the first half of the year with the market shifting its attention to tariffs and inflation readings. Tariffs have continued to be the largest headwind in the market during the 2nd quarter with both the U.S. and China issuing $50 billion worth of tariffs on each other’s goods along with the U.S. intensifying its trade rhetoric with the EU, Canada, and Mexico. This has acted as a cloud hanging over the market with businesses holding back on some investments until they have a clearer picture of how the tariffs may affect their bottom lines.

The second half of the year should start to provide some clarity as company earnings are expected to remain robust, and we should start to see how companies are investing their excess capital from the corporate tax cuts. During the second half of the year, U.S. corporations should also provide more insight into how their individual companies will be deploying their excess capital. This excess capital can be used for many different types of investments such as; more stock buybacks and dividend increases, hiring and increasing wages, mergers and acquisitions, as well as capital expenditures. We will also be monitoring the upcoming midterm elections to see if this will have an impact on government policy going forward.

The Federal Reserve raised interest rates for the second time this year in June, which was also the seventh rate hike since December of 2015. The quarter point hike to a range of 1.75%-2.00% was widely expected, but the focus was primarily on where the Fed expected rates to be going forward. The Fed is now expecting another two rate hikes before the end of 2018 with high probabilities of September and December being the next two dates for rate hikes, along with planning for a gradual reduction in their balance sheet. The Fed’s dot plot also signaled they are projecting another three rate hikes for 2019 with one additional hike in 2020. Fed leader Jerome Powell also noted that he thought the economy was doing well. We continue to see strong growth, low unemployment, and large corporate profits.

Inflation is currently running at what the Fed would consider normal levels of around 2% with expectations of inflation not running hotter than Fed expectations barring a large escalation in tariffs. With the string of strong earnings growth and the market consolidating since its run-up last year into January 2018, equity valuations have been reduced to levels that are more in line with historical averages. We believe economic growth will continue to stay positive in the current environment with the corporate tax cuts continuing to drive growth and outweigh the tariff worries. However, we will be keeping a close eye on how the trade rhetoric between the U.S. and China continues to develop throughout the remainder of the year as well as how the mid-term elections turn out as we begin to consider how to posture our portfolios going into 2019. We have continued to maintain a neutral stance on equities with an underweight to fixed income while focused on shorter durations in our fixed income allocations, and we recommend maintaining an appropriate risk tolerance throughout the current market cycle.

Are the tax cuts working? 

By Cody Allen, Senior Vice President 

Are the tax cuts enacted last December having the hoped-for impact? How is the economy doing?

Too soon to say, but we have a number of good portents. Gross Domestic Product was up 2.2% in the first quarter. In the last four years, the first quarter of the year has tended to be disappointing, with an average growth of just 1%, so 2.2% is quite strong by comparison.

Even better, the profits of the companies in the S&P 500 were up a remarkable 26.3% in the same period. The strong global economy, a decline in the value of the dollar, and the cut in the corporate tax rate all contributed to this good performance. However, another contributor was the record buyback of $178 billion in shares. Because profits are reported on a per-share basis, the buybacks create an artificial lift in the percentages.

A broader measure of corporate profits is created by the Commerce Department. This figure excludes foreign operations, and it includes all U.S. companies, privately as well as publicly held firms. The Commerce Department also includes any one-time changes to earnings that are usually excluded from the S&P 500 numbers. The government measured profit growth at just 0.1% in the first quarter. What’s more, were it not for the reduction in the corporate tax rate, profits would have fallen by 6% instead of growing.

That shows that the benefits of the tax cuts are flowing to businesses as intended. Whether that will translate into sustained above-average economic growth is still an open question.

In the Community - Our Non-Profit Spotlight

At the Community Foundation of the Great River Bend, we have a passion for Community. The Quad Cities has been our home since 1964, when we first cast a vision for area philanthropy. Today, we are the most trusted resource for community generosity in the region. When people give to their community and the causes they care about through the Community Foundation, they are saying they believe in the people of this community and are willing to make an investment in the future of the Quad Cities.

As America experiences the largest transfer of wealth in history, people are choosing to invest in their families and the community that has helped them achieve their goals. By 2060 in the Quad Cities, more than $36 billion will be passed from one generation to the next. If together we invested even 5% of that wealth for community needs and opportunities, we would overcome obstacles that no one person or organization can pursue on their own.

“So many people have trusted us to help them leave a legacy and now can invest in the Community Foundation to amplify and leverage goodness and opportunity,” says Sherry Ristau, President and CEO of the Community Foundation. “The ripple effect will transform our region forever.”

At the Community Foundation, we nurture and steward lasting gifts from donors, for our community. We rely on the advice and expertise of professional investment managers at Northwest Bank’s Investment Management Group. Together, the Community Foundation and IMG work to empower generosity in people in the Quad Cities and beyond. To explore how you can make a difference through giving back to your community, contact the Community Foundation at 563-326-2840 or visit

Oppenheimer Research Symposium

Keith Bonjour attended the Oppenheimer Funds Research Symposium in New York City in March. The conference provided insight into Oppenheimer’s key themes for 2018, their current economic and fiscal outlooks, and their thoughts on the current interest rate environment. Oppenheimer discussed their predictions on the future direction and return scenarios for both stocks and bonds depending on what economic and fiscal policies are enacted in the future. They also addressed their thoughts on current tax changes and inflation outlook.

Several key note speakers from other large investment managers addressed their perspectives on the market along with their in-house outlook for U.S. and international stocks, emerging market stocks, and U.S. and international bonds. The conference provided in-depth analysis into Oppenheimer’s process when constructing portfolios and choosing investments.

Contact Keith by phone at 563.388.2536 or email at 

Cannon Financial Institute

Nadine Hofstetter, Assistant Vice President and Trust Operations Officer, successfully completed Cannon Financial Institute’s 10 week program titled “Trust Audit, Compliance & Risk Management I.” This course is the first in Cannon’s Trust Audit, Compliance, & Risk Management Curriculum, designed to prepare professionals for the Certified Fiduciary & Investment Risk Specialist® (CFIRS®) designation. It is devoted to those professionals charged with the oversight of Trust services. Hofstetter already holds her Accredited Trust Operations Professional designation.

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