The markets are continuing to trade in a volatile range, with no real direction in place. Performance-wise, the markets have been plus or minus a few percentage points the entire year. But, it “feels” more negative because of the volatility we have experienced since January. There are a few things that stand out to us in this time frame:
1. The economy continues to hold up very well. In fact, the Index of Leading Economic Indicators just came out in June and the index is continuing to hit new highs. Markets/economies rarely turn over when the leading side of the economy is still accelerating.
2. The talk of a global trade war continues. We believe most of the volatility we have experienced in the last five months can be directly attributed to the talk of retaliation between countries. That said, we think the chances of a full-blown trade war are very low.
3. Interest rates continue to rise. Our current unemployment rate stands at 3.8% and we are beginning to see wage pressures. These are the two main drivers to the FED and this leads us to believe that rates will continue to press higher for the foreseeable future.
As always, we appreciate your loyalty as a client and the privilege to serve you.
The markets have remained in a roller coaster trading range for most of the past three to four months. Most asset categories bounced around during the last five months, finishing in slightly negative territory for the year. In reality, we are almost back to where we started 2018.
The silver lining in all this is, even as prices dropped during the last quarter, the fundamentals of our economy have continued to improve. As of late March, the estimated earnings growth rate for the S&P 500 was a whopping 17.3 percent. This would be the highest earnings growth rate we have seen since 2011. Given the benefits of lower corporate tax rates on company earnings, the increase is not surprising, but the magnitude of it is. Additionally, the internals of the market have continued to hold strong as we have traded sideways for the last four months, which is typically a positive indicator for future movement.
We continue to believe this market correction will eventually give way to higher prices. We are going to continue to be at the whim of global geopolitical headlines. But, as long as the global economies continue to improve, the value of the markets should drive prices higher.