Now that we are halfway through 2019, I like to look back at the first six months of market action to determine what the second half of the year will bring.
Market action during the first half of 2019 was strong …
The SPX 500 is coming off a sensational first half of the year. It is up 17.2%, which is the best first half in quite a few years. Will this strong upward momentum continue through the rest of 2019? History says yes as money continues to flow toward stocks.
Technology, homebuilder and consumer goods sectors were strong over the past six months. As is usually the case, stocks were pushed and pulled by Fed policy, trade policy and erratic tweets.
Surprisingly, bonds showed enormous power, enough to drop long-term yields below some of the shorter term lending rates. This scenario set up the potential for an interest rate cut or two, which is likely to come early in the second half of the year.
Gold also surged at the end of June to finish up 7% – and that may portend trouble ahead.
But there is a lot of uncertainty
Evidence shows that the economy is slowing down, another reason the Fed is likely to be pre-emptive with rate cuts. They want to stimulate growth, but of course the effect of those cuts could be months away. With that said, all signs point to interest rate cuts: Gold is strong, bond yields are down and the dollar has slipped.
“But the equities markets are doing so well,” you might think. And you are right. When the Federal Reserve flipped to a more aggressive, dovish stance in early June, market players saw the opportunity to drive equities higher.
Earnings fell during the first half of the year, and if that continues the effect on market action will multiply. Trade policy will also affect the markets. If the issues are resolved, the current uncertainty will be lifted. We could see more money flow into the markets, leading to more robust gains ahead. We could also see the industrial, banking, transportation, technology and consumer good sectors lead the markets higher.
My advice? Buckle up! Market action is going to take us on a wild ride during the second half of 2019.
