It’s summertime and “the living is easy…fish are jumping and the market is high.” The market recently reached new all-time highs, as the S&P 500 posted its best first half since 1997, and the best June since 1955.1 Some investors believe this is a good reason to take profits. While we have never
claimed to be able to time the market, there are many good reasons which we will outline below why we do not believe the narrative of doom and gloom.
Historical Patterns
You may have heard, “sell in May and go away.” However, June was a great month and July is historically a strong month.2 We don’t see any reason why this year should be different.
While many believe positive performance in the first half of the year is a good opportunity to “take profits”, historical patterns also show the S&P 500 has risen an additional 6% over the rest of the year after a first-quarter gain of 10% or more.3
China Trade
The market seemed to be in a holding pattern as investors awaited the outcome of the G20 meeting in Japan with President Trump and Chinese President Xi. The market celebrated after a short-term agreement was reached. Though there is a long road to a complete cessation of the “trade war”, we believe a long-term settlement will eventually be reached, as it is in the best interest of both countries to come to a permanent agreement.
Interest Rates
The Federal Reserve removed the word “patient” from its discussion of interest rates. Our expectation is that a proactive Federal Reserve will cut rates twice this year (hopefully one this month), which we think will extend this current longest expansion in the history of the U.S.4 Lower interest rates generally create a healthy environment for stocks.
Earnings
As you know, it is our strategy to invest in companies whose earnings are growing, as earnings are the fuel that propels stock prices over the long run. Second-quarter results have started to be released. Although we may be due for a slight consolidation, we should see favorable earnings reports for our companies coming throughout the third and fourth week of July and on into August.2
Jobs
Hiring has continued at an above-average pace, with employment growth averaging around 200,000 jobs per month. Weekly claims for unemployment benefits have dropped to cycle lows several times this year.5 Of course, putting people to work also puts money to work as they spend more as well as invest more.
For all these reasons, we are not fearful of this all-time high. Though short-term pauses and corrections will come, we continue to believe we are in a secular bull market. Stay the course…and enjoy your summertime J
1Navellier Market Mail, July 2, 2019
2Growth Investor, Louis Navellier, July 2019
3John Lynch, LPL Financial, July 2, 2019
4Larry Adams, July 1, 2019
5LPL Research, June 2019
Past performance does not guarantee future results and there is no assurance that the objectives will be met. Investing involves risk and you may incur a profit or a loss. The information and opinions provided have been obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. Expressions of opinion may not necessarily be those of Raymond James & Associates and are as of this date and are subject to change without notice. The opinions expressed are provided solely for informational purposes and not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Long-term investing does not insure a profitable outcome. Investment Management Consultants Association (IMCA®) is the owner of the certification marks “CIMA®,” and “Certified Investment Management Analyst®.” Use of CIMA® or Certified Investment Management Analyst® signifies that the user has successfully completed IMCA’s initial and ongoing credentialing requirements for investment management consultants. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Any information is not a complete summary or statement of all available data necessary for making an investment decision. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise.
