The U.S. equity markets suffered a small setback in the first quarter, but the second quarter brought us back into positive territory. International stocks are not faring quite so well. Both the developed international and emerging economies finished in negative territory for the quarter.
What’s going on? There appear to be several forces fighting for control over the investment markets. The current bull market started in March of 2009 and seemed to be running out of steam in the first quarter. However, the stimulus provided by the recent tax bill kicked in for companies that have traditionally experienced higher tax rates.
A fiscal stimulus in the ninth year of an economic expansion is almost unheard of, but it is clearly having an effect: economic activity was up nearly 5% in the second quarter, unemployment has continued a downward trend that really started at the beginning of the bull market, and corporate earnings – with the lower corporate taxes factored in – are projected to increase roughly 25% over last year.
The Federal Reserve Board has raised short-term interest rates once again, and has announced plans to continue in September, December, next March, and next June. Meanwhile, the labor markets are so tight that there are more jobs available than workers to fill them. This will eventually force companies to share their profits in the form of higher salaries. And there are potential problems with the escalating trade war that America has picked with its trading partners.
With strong fundamentals and positive investor sentiment, this bull market could continue for a while. Indeed, the US market, as measured by the S&P 500, has risen 2.7% in the past six trading days since quarter end. However, with the uncertainties that exist, we expect volatility to continue in the markets. Sticking with your strategy during periods of volatility, not making emotional decisions, and having a plan for any short-term cash flow needs are all important to staying on track to achieve your long-term goals.
If something has changed in your life, or you have questions about your strategy, please give us a call.
Sources:
Wilshire index data: http://www.wilshire.com/Indexes/calculator/
Russell index data: http://www.ftse.com/products/indices/russell-us
S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–
Nasdaq index data:
http://quotes.morningstar.com/indexquote/quote.html?t=COMP
http://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx
International indices: https://www.msci.com/end-of-day-data-search
Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci
Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
Bond rates:
http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/
General: