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Markets Riding Wave of Optimism to Record Highs in 2019

  • The Dow Jones Industrial Average is up roughly 16.6 percent YTD; it was up just 2.4 percent through the same period in 2018
  • Analysts partially attribute this performance to the actions of the Fed, whose chairman expressed “sensitivity to the message that the markets are sending” in early January
  • The S&P 500 closed Q1 up 13.1 percent, marking the best first quarter performance for the index since 1987

U.S. financial markets recorded strong growth throughout the first half of 2019, despite trade tension with China and continued uncertainty from Fed Chair Jerome Powell regarding the timing of upcoming rate adjustments. At the end of June, the S&P 500 was up 17.35 percent YTD. Likewise, the Nasdaq was up 20.66 percent YTD, and the Russell 1000 was up 17.68 percent YTD.

Although job growth slowed during May, the unemployment rate stood strong at 3.6 percent. As a result, retail sales strengthened for the month, up 0.5 percent following a revised 0.3 percent gain in the month prior. This rising consumer confidence has many analysts calling for continued economic growth throughout the balance of 2019.

American investment management firm BlackRock lowered its global growth outlook in a July report, citing tariff and trade tensions as significant concerns for global markets, but it also noted that the response of central banks to the weaker outlook is “creating a constructive environment for U.S. and European stocks,” per CNBC. Jean Boivin, head of the BlackRock Investment Institute, added that the firm’s analysts “don’t see recession risk as anything that’s relevant for this year.”

Stock analysis firm Seeking Alpha reiterated this belief, noting in a mid-year 2019 outlook its belief that “prior recession fears in early 2019 have shifted lower.” Similar to BlackRock’s analysts, the Seeking Alpha team cited accommodative global central banking policy and near-term economic growth as primary drivers for sustained market performance throughout the second half of the year. The team goes on to suggest that “investors should begin to allocate a higher percentage of assets toward equities” based upon its updated year-end target of 3,200 for the S&P 500.

With global market conditions pointing toward continued growth despite trade tensions and interest rate uncertainty, investors are buying into the rush, and experts suggest that there is strong precedent for doing so. As Mark Haefele, global chief investment officer at UBS, told MarketWatch earlier this year, “Record highs tend to be supportive of, rather than detrimental to, near-term returns. Using S&P 500 price data since 1950, after stocks set an all-time high, their subsequent six-month price return has been 4.7 percent.”

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