“My therapist set half of glass of water in front of me. She asked if I was an optimist or a pessimist. I drank the water and told her I was a problem solver.”
The S&P 500 has traded at the current level (S&P 500 2860) several times over the past few years. June 2019, May 2019, April 2019, Aug 2018 and Jan 2018. Earnings, interest rates, and GDP continue to support the current market prices. The US economy is likely to keep “moving” with limited risk of recession over the next 12 months.
The most recent volatility, not enjoyable, was anticipated for the most part as the FED lowered interest rates .25%, President Trump increased tariffs on China and the market had risen over 25% from the December lows. We are currently in the process of having a 5-7% pullback and those are very normal in short term overbought conditions.
In the short term, we may see more consolidation after the trade tensions re-accelerated and the Fed failed to meet lofty expectations. However, intermediate technical trends remain supportive of upside in equities. Longer term, we believe the positives (supportive FED, earnings continue to move higher, strong consumer driven economy) still outweigh the negatives (slowing global manufacturing, fundamental slowdown, and trade tensions). Raymond James has a year-end target of 3100 on the S&P 500 based on $168 of earnings on the S&P 500.
The Economy
The FED anticipates 2.4% GDP growth in 2019 and 2.2% in 2020 (The Conference Board Economic Outlook, 2019-2020). If the current economic expansion continues, it will be the longest on record. With over 2% GDP, the economy should continue to expand well into the future. (THE FED)
Earnings
Earnings are projected to increase by 4-5% in 2019. This is on top of the 22% earnings growth in 2018. The projected revenue growth rate for 2019 is 4.1%. (Factset earnings insight)
The secular bull market which commenced on March 9th, 2009, remains firmly intact. Investors are witnessing the second leg of this great bull market that began in February, 2016 which is always the longest and strongest as it is driven by improving economic conditions caused by the monetary stimulation of years past. Since the first leg lasted nearly 7 years, despite the black headlines and the widespread fear, the current leg remains relatively early.” (Lowery Research Organization)
Historically, August begins a more lethargic period of time for the equity market. The August through September period has historically been the weakest rolling two month period for the S&P 500 (-.06% on average) since 1980. However, that does not mean investors should flee the market. Rather, we suggest investors remain engaged with the markets as any potential pullbacks, like the one experienced over the last few days, could provide opportunities to increase exposure to riskier assets such as equities as we head into the fourth quarter, a historically strong period for equities. (Larry Adam, Chief Investment Officer, Private Client Group Raymond James)
As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor. I’m here to assist you and to answer any questions you might have in regards to financial planning, the markets or walk through any issue that concerns you. As always, thank you for the relationship and trust.
Harry S. Williamson, WMS
Vice President, Investments
Financial Advisor
Any opinions are those of Harry Williamson and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or
Forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 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. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S .stock market.
The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal.
Prior to making an investment decision, please consult with your financial advisor about your individual situation.
