Market Update – July 2019
I hope you all had a nice time celebrating Independence Day last week. I suppose that’s sort of the unofficial “halftime” for summer, and for the year, too. With that in mind, I wanted to give you an update on the markets, as well as my outlook.
According to Morningstar, the S&P 500 index of large cap U.S. stocks was up about 18.5% in 2019, through June 30. The last time the S&P 500 had such a good first half was 1997. Given that on average I expect the market to make around 10% per year, this about catches us up for last year and this year. International stocks, as measured by the EAFE, were up about 14%, the Russell Mid Cap index was up about 22%, and the Russell 2000 index of small stocks was up around 17%. The last category, small cap stocks, is the surprise to me. Since most small stocks have relatively small exposure to international markets, they are often less influenced by a strong Dollar (which we had) and trade tensions (which we had).
The second half of 1997 was marked by volatility, especially late October, which saw a mini-crash. I’m not predicting anything like that, but I am expecting more volatility in the second half of 2019. The S&P 500 has more or less reached the value that I had expected for the end of 2019. That does not mean that you can’t make money in stocks through the end of the year. I think it will mean that stock selection will be more important, as different stocks and different sectors will take turns outperforming and underperforming.
As of July 8, my indicators are suggesting that the stock market is overvalued. Railcar loads, in particular, are weak, and they have been weak for a couple of months now. GDP estimates are being revised downward and we are in a historically underperforming season of the year. It’s not all doom and gloom, though, as low-interest rates and strong demand are providing support for stocks. We won’t necessarily have a pullback; the market could just consolidate for a while. We are going to be taking profits in discretionary accounts, and re-allocating into stocks that have not performed as well. We continue to try to invest in stocks with increasing earnings estimates. Stock prices usually follow earnings, as investors typically prefer to own shares of companies that are predicted to pass along those earnings in the form of higher share prices or higher dividends.
We’ll also be keeping a close eye on the Federal Reserve, and what decision they make on interest rate policy. There was a great deal of talk about the Board cutting short-term rates in an effort to stimulate the economy, but some recent data suggests that a rate cut might have to wait until later in the year. The short-term direction of the stock market could be very heavily influenced by the next few meetings of the Fed.
I hope you enjoy the second half of 2019, and I hope that the stock market continues on this pace! We’ll monitor and adjust portfolios as warranted. In the meantime, please don’t hesitate to call me to review your portfolio or to revisit your risk tolerance.
As always, these recommendations are mine, and may or may not be the same as those of Raymond James. This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.
Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss. The foregoing is not a recommendation to buy or sell any individual security or any combination of securities.
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 Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. MSCI EAFE (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. Individuals cannot invest directly in any index. Index performance does not include transaction costs or other fees, which will affect investment performance. Individual investor results will vary. Dividends are not guaranteed and must be authorized by the company’s board of directors. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. The prices of small company stocks may be subject to more volatility than those of large company stocks, and therefore, may not be appropriate for every investor. There are additional risks associated with investing in an individual sector, including limited diversification. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Scott Mitchell and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.
