An Early-Summer Update
Wealth & Pension Services Group
William Kring, CFP, AIF - Chief Investment Officer
As we settle into summer and the market seems to be relatively calm, I thought I would offer a brief recap of what has transpired this year in the way of investing, and what we might expect for the remainder of 2018.
Overall the market has traded in a tight range for the year with small losses for stocks and bonds through the first quarter. For the second quarter, we’ve seen decent gains for stocks with bonds mostly flat. As of the day of this writing (June 18th), the market is on a four-day losing streak of small losses. I’m hopeful we break the trend and get a good finish this week to take us into the quarter-end. Note that we have the World Cup to contend with this summer. What does soccer have to do with the market, you ask? Research shows that trading volume goes down during matches. The sport is that big.
So far this year, the U.S. is leading international markets, and small stocks are beating large stocks. Within the market-dominating large cap segment, tech continues to be the growth story. As for other sectors, energy has made a nice rally this year along with rising oil, while financials – which would typically do well with rising rates- have done poorly. As for safe stocks like consumer staples; no one wants them. The main story, if you will, remains trade. Whether we are in a trade war or not, the market seems to move up and down based on this news.
On the economic front, Europe has shown signs that their economy may be slowing and may not catch up to our level of growth. The U.S. continues to put in substantial earnings growth. The dollar has strengthened recently, while short-term interest rates have risen to match the Fed, and the ten-year is hovering around 3%. So, we are approaching a point where short-term cash-like investments can generate a decent yield, and where the ten-year may be a little competition for stocks. Just a little, though, because stocks should continue to put in solid numbers on the back of tax reform and a healthy economy – without the burden of higher labor costs. At least, not yet.
Within our portfolios, we continue to make some small adjustments that have added value. Small caps, hedging some interest-rate exposure for bonds, hedging some dollar exposure on international equities, adding an inflation/commodity position, and large growth funds have all been beneficial. Detracting from results this year has been emerging markets, financials, and large value stocks which are underperforming growth. Overall, we are doing well with our allocation and results.
For the remainder of the year, with the economy still healthy, no recession in sight, the Fed tightening -but conveying flexibility, the market should be relatively free to focus on what matters; earnings. Once again, earnings should tell the story and be the "thing" that matters. That is until there is another thing!
I'd be happy with mid-single-digit returns for 2018, providing some time for the market to gather steam for 2019.
As always, please reach out if you have any questions or want to discuss your portfolio in more detail.