Question: What do the current Prime Minister of Australia, the former governor of California, and future federal funding for UC Berkeley have in common? Hint: messages from the White House in a limited number of characters.

Yep, all three have been subjects of at least one tweet from President Trump over the last few days. Of course, so have lots of other folks. It’s turning out that the president uses Twitter almost daily to communicate with the American people, effectively making the microblogging site his personal communication platform. Must be gilded times for the social media giant.

“Friendstalker” was one of the early names considered for Twitter

Or not. Even with the media effectively functioning as a giant – and free – marketing vehicle, Twitter Inc. just posted its 10th consecutive quarter of lower revenue. The company is, in fact, losing money. More accurately, still losing money. Despite having some 310 million monthly users – almost the same as the U.S. population – Twitter hasn’t minted any quarterly gold since going public in 2013.

Twitter’s bird is called Larry

Worse, CEO Jack Dorsey, who returned to Twitter’s helm in October 2015 to recharge its stalled user and revenue growth, told investors last week that profitability in 2017 will be “challenging” as advertising revenue looks increasingly at risk. Meanwhile, Twitter’s biggest competitor, Facebook, is widening its lead, and another rival is coming up fast from behind: Snap Inc., expected to go for the public gold this year.

44% of registered Twitter users have never tweeted

It’s being said that the best outcome for Twitter is a takeover. Maybe, but one way or the other, growth and profits will be increasingly hard to mine. Said another way, and in less than 140 characters: If Twitter can’t benefit from a phenomenon like Donald Trump, it’s probably not gonna’ benefit from much of anything.

What the markets have been doing…

Stocks rose slowly and steadily across the period, carrying nearly all the major indexes to new highs. Along the way, the most important benchmark of the bunch, the S&P 500, established an all-time record for consecutive trading days without a daily swing of over 1%, extending its run to 39 by Friday’s close.

Hopes for higher corporate profits and lower taxes under the Trump administration continued to boost sentiment around the trading community. On the economic front, the news was relatively light over the two-week stretch and seemed to have limited impact on stock prices. Early reports of an increase in drilling rigs sent oil prices and energy shares lower, though both rebounded by period end

Index Friday’s Close Two-Week Point Change Year-to-Date Change
DJIA 20269.37 +175.59 +2.56%
S&P 500 2316.10 +21.41 +3.45%
NASDAQ 5734.13 +73.35 +6.52%

 

Amid the relatively sparse economic data, Treasury yields and prices barely changed for the period, though demand for 30-year bonds was strong at auction. A handful of investment-grade deals were also met with solid buying interest. Municipal bonds posted slightly positive returns for the period, but underperformed Treasuries as the tax-free new issue calendar picked up. Puerto Rico’s debt performed well on news the commonwealth would make the February 1 coupon payment on its general obligation, aka junk, debt.

Fixed Income Yield Two-Week Yield Change
2-Year Treasury
1.21%
NC
10-Year Treasury 2.45% -(0.03)%
30-Year Treasury 3.04% -(0.04)%
30-Year Municipals 3.14% +0.02%


What Fund Architects has been doing…

Clearly, investors are still a bit preoccupied with politics, not least of which the debate over tax changes. Meanwhile, economic data continue to point to a broadening acceleration of growth within the U.S. This non-political reality should help corporate earnings and certain sectors of the equity markets. The post-election trends appear to still be intact.

The Fund Architects’ portfolios are nicely positioned in this environment. On the equity side, Global Industrials (EXI) have been at top of our rankings for three straight month. The consistent performance of these blue chips has provided strong risk-adjusted returns. For the second straight month, the SP500 (IVV) is at the top of our rankings, indicating solid investor preference for U.S. equities over their international counterparts.

On the fixed income side, we moved assets to Convertible Bonds (CWB) the first of the month to complement our existing position in High Yield (JNK). As equity markets rise, high yield and convertible bonds should be better positioned to capture this upside than their fixed income counterparts.

While the rising uncertainty over the new administration is a growing risk, the political backdrop is still supportive of growth and financial markets. it continues to make sense to stick with a pro-growth investment stance and to overweight the appropriate sectors in our investors’ portfolios.

Buckle up.…

Three reasons Goldman Sachs is downshifting its financial expectations for the new administration:

  1. Obamacare struggle is a sign of things to come
  2. Polarization of political parties is getting worse
  3. There’s a real possibility of market disruption

(Bloomberg)

Quote of the Week…

“It’s not a Facebook, nor do I think it’ll ever be a Facebook.” 

Nabil Elsheshai, senior equity analyst at Thrivent Financial, on Snapchat’s pitch for an initial public offering

Number of the Week…

$2.6 billion

The value of new assets the Dow ETF has pulled in so far this year, more than any other U.S. stock exchange-traded fund


The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional.  The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.

 

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