Half-Time Whistle!

Despite the gains recorded towards the end of the trading week, the indexes missed out on an opportunity to offset a big portion of the week’s losses. The NASDAQ and the Russell 2000 have succeeded in holding their ground all throughout the latest battles of the trade war, but took a hit last week, falling 2.4% and 2.2% respectively. The indexes were sent lower after news that Trump would limit foreign investments in U.S. tech companies, though not before long, the administration softened its stance later in the week. The S&P 500 and the Dow ended the week off by about 1.3%.

This past Friday signified more than anything else the end of the month and the end of the first half of the year. The Dow has been trading under pressure since January in light of rate hike concerns and rising potential for a trade war. The blue-chip Dow is the only one of the large 3 indexes which recorded losses in June (-0.6%) and declines on the year (-1.8%).

Conversely, the NASDAQ was the best performing index in that period, trade war concerns only recently taking a toll. The NASDAQ was up almost 1% in June, with impressive gains of 8.8% year-to-date. The S&P 500 ended June with light gains of 0.4%, trading up 1.7% over the last 6 months.

It could be that this week’s big story is that trade wars are of substance for the market. This was the first time that the market remained under selling pressure for more than one trading day due to trade concerns. Correction buyers didn’t ignore the news this time, and the market didn’t succeed in recovering with the same strength that we were used to seeing in the past in situations of this ilk.

The bullish spin is that despite trade wars, the market still has support. The S&P 500 succeeded in finding support last week at the key 2,700 point level and the line that’s trended upwards since April’s low. The bears indeed might feel tempted to rest on their laurels after their high success rate last week, but by the same token, they still haven’t succeeded in producing continual pressure that causes market players to believe that there’s really been a change in the market’s state of affairs.

The first half of the year truly was volatile. The market kicked off with a lot of optimism and a series of new historic highs on the heels of the spectacular 2017 movement. That notwithstanding, the first big challenge was rooted in rate hike concerns. Thereafter, the White House started imposing levies that are expected to go into effect this week. And of course you can’t forget the beautiful earnings season!

All-in-all, though, the market is not in a good place. That, in of itself, expresses itself in the lack of clear leadership, sharp declines over the last few weeks in financial stocks, the hit taken by tech stocks and the absence of discernible pockets of momentum. What we’re seeing is a market that requires a more defensive posture, as well as self-discipline!

The good news is that this type of weakness in price movement is exactly what leads to beautiful opportunities down the road. You just have to remain patient, and preserve your account’s equity.

So, what are we in for in the second half of the trading year?

Our forecast for the market remains very positive, despite the negative forces that weighed on stocks in the first half of the year.

The big risks that the market is facing in the second half of the year subsume trade wars and concerns about the Fed. We believe that despite the fact that trade issues will be an unceasing source of headlines projecting risk for some time, it won’t morph into an existential threat to the U.S. or global economy.

As for the second risk, the Fed has done superb work in navigating the U.S. economy at extremely difficult junctures in rather recent history, which instills us with a marked sense of confidence that it will succeed in helping capital markets transition to a period of interest rate normalization.

The two forces driving stock prices over the long-run are interest rate levels and company profits. Even the pessimists are aware that the forecasts for the duo have remained very positive.

The fiscal policy of the Trump administration has not only propelled growth but has also lengthened the duration of the economic expansion which began way back when in 2009.

History teaches us that after every period of economic expansion, a period of recession is forthcoming, i.e. what we’re in for in the situation at hand as well. With that said, there’s nothing in the economy or in firms’ figures that points to a recession being on the agenda at any point in the foreseeable future. The fact of the matter is that the forecast for the U.S. economy not only points to stability but rather, consistent improvement.

It’s also key to recall that relatively speaking, stocks aren’t expensive, something that you might expect to be the case seeing that we’re in the 9th straight year of a historic bull run. The S&P 500 is traded at a 12-month forward multiplier of 16.7, significantly beneath the level seen at the end of the 90’s.

That being the case, we believe that investors could certainly see nice stock market yields over the rest of the year.

This coming week will be a shortened trading week, America celebrating July 4th, its Independence Day, with markets closed for trading. It’s also worthwhile to note that July 2nd – the first trading day of the week – statistically, is the best trading day of the year. We’ll have to wait and see how things develop.

Have a great trading week!