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October 2017

Dear Valued Clients and Friends,

The stock market marched ahead in the 3rd quarter continuing a rally that has moved along without a hiccup since early 2016. The market has now gone a full year without a single monthly decline, with only one down month since the tide turned in early 2016. The tech and consumer-heavy Nasdaq led the way through the first two months of the quarter. A synchronized global economic revival helped these large global consumer companies. Small-cap companies, lagging all year as they have less exposure to the global economic strength, fell back in July to showing zero return for the year. However, they sprang to life in the second half of the quarter as the market shifted its focus to the potential for domestic tax cuts and a recovery in energy and financial shares, which are more heavily represented in this index.


What does a global economic recovery look like? This chart of a key global metric shows green all up and down as of August 2017 with Korea the only country below an expansionary reading of 50.


The global economic strength boosted international stocks which, combined with weakness in the U.S. dollar, fueled a solid quarter for commodities like copper and oil.


Despite all the talk about the coming unwinding of the Federal Reserve’s balance sheet of bonds, which should raise interest rates all other things equal, interest rates barely moved throughout the quarter. Inflation has remained very low which has kept rates tame. All of this strong economic and market activity has kept our strategies and accounts moving forward

Now it’s October and all through the market there was nary a sign of concern, nor a hint of trouble. Yet we know October as being one of the worst months for stocks, primarily because the month has spawned a couple of major market crashes. Take those crashes away and October is a typical month in stocks. We enter this potentially dangerous month with some interesting data points. For one, the global stock market has registered eleven consecutive monthly gains. If October also proves positive, it will be a record winning streak. Note that after the single other instance of eleven wins, back in 2004, the nearest streak is only seven months.


This comes as global, non-U.S., stocks have finally managed a full recovery from their recent bear market. What? You didn’t know that stocks were emerging from a bear market? Stocks outside the U.S. logged an almost -30% decline over 18 months from July 2014 to February 2016.



This year is also setting records for its low level of volatility. In fact, this is the 2nd longest run in history where the S&P 500 hasn’t even had a measly 3% pullback. And, as shown in the chart below, this is the 2nd least volatile year on record ever.



Looked at another way, this year has so far been one of almost zero pullback in stocks. The red dots below show the maximum decline, or drawdown, in a given year. So far in 2017, we are tied with 1995 as being the most benign year of the past 37 years.



In short, this low level of volatility will come to an end at some point and normal market volatility will resume. Commonly referenced long-term valuation indicators such as total market capitalization vs GDP (most frequently attributed to Warren Buffett) and the Shiller CAPE Ratio (cyclically adjusted price-earnings from Yale economist Robert Shiller) both show the markets at nosebleed levels, at heights only associated with past stock market crashes in 1929 and 1999. Yet, investors generally still see the markets as ‘not too hot, not too cold’ with earnings per share ticking up ever so slightly quarter over quarter, low inflation, accommodative monetary policy, and strong employment. With the anticipation of a reduction in both corporate and personal income tax rates, investors still see rosiness ahead. Hence if the prospects for tax reform start to go the direction that healthcare reform went, investors seem likely to change their outlook, especially if the next crop of earnings announcements in the coming weeks starts to disappoint.

Either way, we, as always, stand prepared, with tools and strategies to navigate the markets when the volatility and inevitable corrections return. If you are thinking about your investments, now might be a good time to review your strategies with us as we can be certain that the coming quarters are very likely not to repeat the benign conditions that we have recently witnessed.

To future profits,


Don Lansing
Chief Investment Officer.
512-289-0620

Garrett Beauvais
Portfolio Manager
512-796-0233

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MARKETTREND
Advisors, Ltd.
3720 Gattis School Road #800-214
Round Rock, TX 78664-4660



About MarketTrend Advisors

MarketTrend Advisors is an investment advisory firm that specializes in the trend-following strategies outlined in this report. We offer a variety of strategies that can be used to build portfolios to meet almost any investment objective. We divide our strategies into two main groups: "Long" strategies and "Trend" strategies. The Trend strategies follow the trend up or down. The "Long" strategies are typical investment portfolios that usually remain fully invested, potentially raising cash or moving to income-focused investments when the market is weak. We have a variety of "Long" strategies depending on how aggressive or conservative you want to be. These strategies will make their money when the market is moving higher. The "Trend" strategies will provide protection in a down market and add to gains in an up-trending market. By combining the Long and Trend strategies you get all the components needed to build a successful long-term portfolio:
  1. A portfolio invested in the best performing indexes, ETFs, or stocks
  2. Substantial exposure to global growth through international holdings
  3. Protection for your overall portfolio from down-trending markets When the market is going up, you benefit as aggressively as you wish.
When the market is going down, your assets are protected, or even profiting. Over time, you will see returns that exceed the market if only by AVOIDING market corrections and bear markets. By using one of our more aggressive long strategies in an uptrend, you will see even better performance.



Disclaimer
  1. MarketTrend Advisors, Ltd. is an independent registered in the States of California, Florida, New York and Texas.
  2. Other Securities Industry Affiliations or Activities. MarketTrend Advisors, is not registered as a broker or dealer, nor do we have any partners or employees who are affiliated with any broker or dealer. See Form ADV, Part II for official declarations.
  3. MTA portfolio strategies assume risk and no assurance is made that investors will avoid losses. No representation is made that clients will or are likely to achieve profits or incur losses comparable to those shown. Performance results are shown for illustration and discussion purposes only. The performance information has not been audited. However, the information presented is believed to be accurate and fairly presented. All performance figures in this presentation are net of management fees and commissions. Management fees are charged to actual client accounts on a monthly basis. Accounts include both taxable and non-taxable IRA accounts.
  4. Regarding the MTA Blend strategy: This strategy was migrated into the MTA Wealth Builder strategy and closed in December 2008.
  5. Regarding actual performance: Actual performance for all strategies includes all commissions as well as management fees (fees range from 1% to 2%). Actual performance statistics are based on the inception date of each strategy through the end of the last business day of the most recent month listed in the monthly performance section of this report. Starting with Q4, 2006, returns include only assets of Fidelity clients who were fully invested in their respective strategies. Returns before Q4, 2006 include all Fidelity client assets regardless of investment status. Results do not include the assets of clients at other brokerage firms.
  6. Regarding future performance: Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to corresponding past performance levels.
  7. S&P 500 refers to the Standard & Poor's 500 Large-Cap Corporations Index. The index is designed to measure performance of the broad based US market and consists of 500 American companies. This index is used for comparative purposes only. (Data is taken from Yahoo! Finance.)
  8. MarketTrend Advisors is not liable for the usefulness, timeliness, accuracy, or suitability of any information contained in its web site or of any of its services. The user understands that the information given can and will fail to predict the direction and magnitude of market price movements and the user can lose money when using this information.
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