The advisors at River Wealth are committed to enriching investors by sharing their insights and understanding of the market by regularly publishing the Market Currents in our quarterly Currents Newsletter.
Second Quarter 2018
Domestic financial markets expanded modestly during the second quarter of the year, while broad international markets reclaimed some of the ground lost during the first quarter. The persistent news, regarding the escalation of trade tension and their potential economic impact, has kept markets jittery. Nevertheless, domestic economic indicators remain positive, and the Federal Reserve appears steadfast in their plan to normalize (raise) short-term rates. In addition, in the early stages of earnings reporting season, the majority of reports have been positive with upside surprises.
Global Economic Conditions – Clouds have rolled in recently over the global economic situation. Any progress in North Korea has been offset by increased trade friction. The implications, thus far, have primarily surfaced in foreign equity and currency markets. Losses in international equities, which are partially a function of an appreciating U.S. dollar, have also been fueled by declining market sentiment, as investors remain concerned about the outcome of trade discussions.
Corporate Earnings – Corporate earnings growth has accelerated largely boosted by the recent U.S. tax overhaul, which significantly reduced corporate tax rates. Expectations for 2018 remain optimistic as analysts project double digit earnings growth to continue. Thus far, the majority of companies reporting second quarter earnings have provided shareholders with positive reports. Improved earnings numbers have kept fundamental valuation measures steady, giving the market room to expand.
Domestic Policy Activity – Leading up to the November elections, it does not appear that any policy activity will occur domestically with the capacity to materially impact financial markets.
Central Bank Activity, Rates and Inflation – The Federal Reserve is on track to increase short-term interest rates four times this year. Despite an expanding economic and employment situation, rates remain relatively low and modest inflation numbers have given the Fed room to act gradually. There is a widely held expectation that rate increases will continue over the next few years.
Financial market conditions have become considerably more volatile this year, and we are starting to see divergent returns across different investment asset classes. Although it has been a while since we last observed a divergence of returns, it is a fairly normal condition over relatively short time periods. From a longer term perspective asset returns are more consistent with risk. We encourage you to remain focused on long-term objectives.
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Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, market, business and other conditions.
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