Investment Update: The Second Half of the Year Holds Promise

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If you contacted our office last week during Tom’s and my family vacation, I hope that you felt well served. Here is the whole family on Lake Ontario in Toronto: from the left, Laura, Annie (who lives in Toronto), John, Rachel and Tom. The smiles are due to a funny remark Annie had just made. There were many such moments on our trip. Tom’s and my many thanks to the Laurel Wealth Planning team whose dedication allowed our time away.

The S&P 500 (which represents the 500 largest companies in the U.S.) has been at a virtual standstill thus far this year, trading in a narrow range and currently very close to where it started 2015. July’s performance was not much different. The approximate 2% rise was just enough to erase losses from June, but history suggests the broad-market index could break out of those constraints during the second half of the year.

Raymond James Chief Investment Strategist Jeff Saut continues “to believe we are in a secular bull market that has years left to run, even though our models suggest a very modest pullback over the next few weeks.” Investors, though, may get caught up in headlines about volatility in Chinese equity markets, rising interest rates and lackluster wage growth. Markets, however, according to Saut, only care if things are getting better or worse. In his view, indicators are gradually getting better over time. One reason for his optimism is the fact that secular bull markets tend to last 14 to 15 years (we’re about 6½ years into this one).

 In terms of bonds, we focus on the data that may factor into the Federal Reserve’s (FED) timing when it comes to raising interest rates, which we expect to occur as soon as September and almost certainly before year-end. Rising interest rates can moderate returns on bonds. That said, FED Chair Janet Yellen emphasized that the FED plans to take a slow and measured approach to raising rates. Please know that we have already recommended many strategies to our clients, as suitable, that take interest rate increases into account.

As always, please let us know your comments and questions.