EQM Capital LLC – 2Q 2017 Market Recap – The Bull Market Keeps Running

Posted on Jul 5, 2017

Bull Market 07

The first half of the year has come to a close. And despite all the drama emanating from Washington D.C., and the lack of any significant progress on the economic agenda, the stock market continues to rally.

The Dow and S&P 500 both gained more than 9.3%. The tech-heavy NASDAQ has soared 14.7%.  And the rally has been broad-based as well.  Of the 30 names in the Dow, 23 posted positive returns and 70% of the names in the S&P 500 Index are up in the first half. In fact, the S&P 500 had its best start since 2013.  And this marked the strong first half of the year for the NASDAQ since 2009.

Outside the U.S., markets have rallied as well on brightening global economic hopes, especially in Europe. And although the Federal Reserve has raised interest rates twice this year, rates on long-term bonds remain low.  Companies are still able to borrow at low rates.  And those low rates make it unlikely that investors will ditch stocks for bonds any time soon.

Another factor buoying U.S. stocks overall is a strong economy and better than expected corporate earnings growth. Reviewing last quarter’s earnings, 75% of the companies in the S&P 500 beat earnings estimates and 64% beat sales estimates.  Going forward, with market valuations above their 5-year historical average, strong earnings next quarter will be essential to keep the rally going.

While market volatility has remained surprisingly low given all the political drama and distractions, there was an uptick toward the end of the quarter. Tech stocks in particular took something of a beating toward the end of the month.   While earnings prospects for technology remain positive as companies spend to upgrade aging equipment, tech companies need to deliver results in order to justify their higher valuations.

Earnings season will hold the key to sustaining the market rally in the second half of the year. And, should Washington D.C. deliver on any components of their economic agenda, that could help extend the bull market rally as well.

As the market heads into the late innings of the bull market run that started in 2009, it is a good time to remind investors to stay focused on the long-term. We know for a fact that long-term investors are rewarded.  But we also know that around every four years the market suffers a setback or a correction.  There is no need to be fearful of these events, no more than you should fear the Olympics or Leap Year, but it is important to be prepared.  The best way to mitigate downside risk in a correction is to be well diversified – that means having exposure to many different types of stocks and bonds.

It seems counterintuitive, but when it comes to investing a little “fear” can be a good thing. Fear helps keep markets from becoming overheated and valuations in check. But it is important not to let emotions like fear dominate your investment decisions. Staying well diversified and focused on your long-term goals should get you to your final destination. That being said, your asset allocation should also consider your comfort level for risk in order to provide a smoother ride on that journey.

The opinions expressed above should not be construed as investment advice. This letter is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Readers are encouraged to seek individual advice from their personal, financial, legal and other advisers before making any investment or financial decisions or purchasing any financial, securities or investment related service or product. Information provided, whether charts or any other statements regarding market, real estate or other financial information, is obtained from sources, which we and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing in this letter should be interpreted to state or imply that past results are an indication of future performance.