2016 Year-end Summary

Last year the economy and the markets performed moderately well. The economy has now weathered two interest rate increases from the Federal Reserve. They see the economy growing moderately with low inflation and steady growth. Inflation is low and slowly rising although nowhere near the Fed’s target range and certainly not a risk.of a more rapid interest rate policy. We expect that they will continue to raise interest rates slowly in an effort to normalize interest rate policy, not necessarily in an effort to head off inflation. Oil prices seem to have stabilized. Foreign trade and the trade deficits also do not appear to be cause for concern.

The U.S. presidential election is over and the new administration has given us some interesting guidance as to where policy may be heading. The most impressive and important strategic initiative will be the infrastructure plans that have received little post-election attention but is still very much in the works. Democrats support the plan provided it is publicly funded. The right-wing Republicans oppose it if it increases the deficit (it likely will) and moderate Republicans likely support it. Interestingly, now that Republicans control the policy levers of government, there is less and less talk of balancing the budget. The infrastructure rebuilding plans and some form of tax cuts are becoming increasingly likely and may become a reality with Democratic help. These initiatives will provide considerable growth to the economy and may cause us to raise our growth forecasts. The markets seem to agree as they continue to react well to the developments.

We continue to remain cautious and vigilant. We are always monitoring these developments and others for indications that would cause us to modify our outlook and investment policy. Please also remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

Joseph L. Toronto, CFA

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