Economic commentary
Despite reaching a recent record high in mid-May, the U.S. stock market as measured by the S&P 500, is up less than 2% through 6/16/15*. Stocks remain in the range they have been in for most of 2015. Healthcare, consumer discretionary, and financials continue to lead the stock market. Foreign developed markets, as well as China, are exhibiting better relative strength than the U.S year-to-date. This is why a global approach to diversification is important. Interest rates have been generally climbing higher this year which has muted bond returns (bond prices move in the opposite direction of interest rates).
So what’s driving the financial markets? The negotiations between Greece and the European Central Bank are front and center once again. Bond volatility in Europe is spilling over to the U.S. And let’s not forget the continued intervention of the Federal Reserve in the U.S. and other Central Banks which are firmly entrenched in the financial markets.
Despite all the negative news and headlines that you may encounter, the stock market has been holding up quite well. September remains firmly in play for the first interest rate hike by the Federal Reserve which has general been viewed as a big negative for the financial markets. This may turn out to be a case of Y2K all over again which after much hoopla became a non-event. By that, we mean that when news becomes the consensus, financial markets have already discounted the generally accepted outcome.
We are entering into a traditionally weak period in the stock market based on summer seasonality. The stock market has been humming along without a 10% correction since August 2011. When this does eventually occur, understand that it is a normal part of the investing landscape. That doesn’t mean it is time to become defensive. Since we will not position portfolios on predictions, we will adapt if necessary and make adjustments as needed. We see the recent short-term pullback in the stock market as still within the context of a longer-term uptrend. We continue to move forward, but with caution.
*Source: stockcharts.com
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