What A Difference A Year Makes

The last 12 months have been a textbook example of why not to panic when the stock market gets bumpy. A year ago we were writing our newsletter after a volatile first quarter that saw the S&P 500 Index (S&P 500) drop 10% over the first 42 days of the year. Small cap stocks as measured by the Russell 2000 Index (Russell 2000) had fallen 16% over the same period. While the market started to recover in March, the S&P 500 had returned only 2% (including dividends) over the prior 12 months ended 3/31/16. Small cap stocks had performed much worse as the Russell 2000 (including dividends) was down 10% over the 12 months ended 3/31/16. At the time, investors were worried about a global recession, negative interest rates, a U.S. presidential election and several other issues.1 Year Total Return

One Year Later—A Much Better Place
Fast-forwarding to 3/31/17, the Russell 2000 is up 26% over the last 12 months. The S&P 500 is up 17% over the same period. U.S. market indices hit new all-time highs in early March. S&P 500 earnings per share are expected to grow 9% year-over-year in Q1 and 10% in 2017, indicating corporate profits are growing nicely. All this has happened against a backdrop of two additional interest rate increases by the Federal Reserve, a highly contentious election and heightened global geopolitical tensions. Our point is that investors who keep a level head and focus on the long-term during periods of market volatility have historically been rewarded.

Solid Start to the Year
The strong start to 2017 has been driven by the Health Care and Information Technology sectors. After a tough 2016, Health Care has bounced back nicely due to attractive valuations and much improved investor sentiment. We believe Health Care and Information Technology will remain key elements of the current bull market. While the market is close to all-time highs, we are maintaining our positive outlook for U.S. stocks. Potential drivers of a gradually rising market include the aforementioned strong corporate earnings growth, GDP growth accelerating in 2017 and 2018, anticipated corporate tax reform in late 2017 or 2018 and rising consumer and business confidence.

—Dan Garofalo & Adam Engebretson
Senior Portfolio Managers
April 2017

Kopp Investment Advisors 8400 Normandale Lake Boulevard Suite 1450 Bloomington, MN 55437 Tel: 952.841.0400 / 800.333.9128