Market Condition: The equity market is in a confirmed uptrend. The S&P 500 is hitting new highs as the Nasdaq
Composite, Dow Jones Industrial, and the NYSE composite index also trade near all time highs. June saw domestic and foreign stock prices rebound. The S&P 500 rose 7.0%, closing the month near all-time highs and generating an 18.5% return for the first half of the year. The MSCI EAFE Index returned 6.0% in June and is now up 14.0% for the year. The MSCI Emerging Market Index gained 6.2% in June and is up 10.6% year-to-date including reinvested dividends. The short correction in May and with the June 3rd bottom, all the indexes have trended upwards along their respective 10 & 20-day moving averages in a decisive manner. More importantly leading growth stocks continue to show an imbalance of demand, and distribution days (selling on heavier volume) on the indexes are at a minimum. Year to date there has not been one distribution week in the S&P 500, again indicating the big money is not selling. But at the same time it is important to gauge how the index acts near the important psychological 3000 level.
Recent headlines: The world of investing is still fixated on tariffs, China, central bank policies, weakening
economies, a looming recession, weakening labor market, and an overdue crash due to the longest expansion on
record. Thus, the general consensus is calling for the end! I guarantee you over the next year you will continue to
read and hear stories of impending doom, I think investors should for the most part ignore those stories.
The economy: The Conference Board Leading Economic Index (LEI), was unchanged in May following three
consecutive increases, which may point to some moderation in growth but not a recession. The trade deficit in
May grew to $55.5 billion, but more importantly showed an expansion in volume of trade (imports plus exports)
indicating there are no signs of a full blown trade war. There has been a decrease of imports from China, but there
has been an increase of imports from Vietnam, Thailand, India and South Korea. I expect we get a deal soon with
China, as China sees U.S. businesses shifting their supply chains to other countries. The ISM manufacturing and
non-manufacturing survey continue to show growth. Nonfarm payrolls rose 224,000 in June smashing the most
optimistic estimates. The Bloomberg Consumer Comfort Index advanced 1.8 points in the week ended June 23 to
63.6, the highest since December 2000. A gauge of views about the economy was the strongest since early 2001,
while a measure of household finances improved to an almost 19-year high.
Summary: Thus far this has been the longest expansion in history, but not the strongest. However that is now
changing with strong pro-growth policies of tax cuts, deregulation, an accommodative fed, and most likely lower
tariffs across the globe. Nominal GDP is now up 5.1% from a year ago, and is up at a 4.8% annual rate in the past
two years. This recent change from the weakest recovery into a stronger expansion indicates the economy and
market have room to move up. Bull markets do not die of old age. This bull market continues to be supported by
strong fundamentals. We have a strong labor market, growing wages and one of the lowest unemployment rates
ever. Corporate earnings are at all time highs with strong cash flows that keep reinvesting, and returning capital to
share holders via share buybacks and dividends. Furthermore, the technicals, fundamentals, interest rates, and
investor sentiment point to markets moving higher. Stock valuations in this interest rate environment are at
reasonable levels and still have room to run. There will be corrections, pullbacks, and shakeouts along the way,
this is expected. We may still get some drama as the S&P 500 flirts with the 3000 level. This continues to be one of
the most hated markets, investor sentiment is very poor, but remember markets tend to fool the majority most of
the time. There is no sign of euphoria which generally precedes bear markets.
It ain’t over till it’s over – Yogi Berra
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