Market Summary
The U.S.
The S&P 500’s June rally has extended into July. Although the U.S. market remains strong, it is also somewhat anxiously focused on the Federal Reserve and on trade developments. We believe that the fundamental supports of the rally are still firmly in place. The U.S. market is climbing a wall of worry, which a good sign.
Canaccord Genuity strategist Tony Dwyer, who has been a perceptive and accurate analyst of this bull market, likes to point out historical parallels. He observes similarities between the present and the bull market of the 90s, which also experienced periods of industrial slowdown and significant corrections such as the one we experienced in December 2018.
In Dwyer’s mind, the December correction, touching 20%, served as a refresh, and while the market may be slightly overbought after the rally year-to-date, that is likelier to lead to some near-term volatility than a repeat of last year’s close. With earnings growth positive, and critical financial conditions showing no stress, the stage is set for further appreciation of U.S. stocks this year.
Our favorites in the U.S. continue to be big-cap growth stocks supported by significant technological, social, and economic tailwinds. For our clients who are more focused on income, we also like select dividend-yielders who can grow their dividends reliably.
Within the U.S., we are cautious on industries and companies that are in the line of fire of politicians and regulators. Several bipartisan initiatives to attack high drug prices are working their way through Congress, and President Trump has telegraphed his intention (or threat) to act by executive order to conform the prices that Medicare will pay to the list prices in other developed countries. While the cost of drugs and other healthcare remains contentious and is being exploited for political gain by partisans on both sides of the aisle, we prefer to stay away, and watch for value to develop.
Europe and Emerging Markets
The U.S., we believe, continues to be the best game in town. Tactical opportunities may present themselves elsewhere, but for now we will not regard them as enduring opportunities.
Europe will remain challenged by slow growth and nationally divisive politics. Opportunities in emerging markets may become more clear as the global trade environment improves and the U.S. and China progress in negotiations. Brazil has continued its strong stock-market rebound, which has accelerated as President Jair Bolsonaro has gotten closer to pushing through the critical pension reforms that could put Brazilian finances on a better footing.
Gold and Cryptos
Gold continues to look technically and fundamentally positive as it consolidates after its recent breakout. Global monetary policy and central bank easing will, we believe, be supportive for gold during the second half of 2019.
Bitcoin has continued its rally, leaving many other cryptocurrencies behind. Several analysts have suggested that the bifurcation means the “end of altcoins,” which seems plausible to us as the digital currency mantle passes to tech giants, big banks, and the world’s governments; in this scenario, bitcoin may appreciate due to its network dominance as a decentralized digital asset, even if its stability as a store of value and usefulness as a medium of exchange are uncertain. On the other hand, the 2019 bitcoin rally has echoes of the “FOMO” fueled rally of 2017 (“fear of missing out”). As usual, we caution would-be speculators to recognize the opacity of the market; not invest funds they wouldn’t be content to lose; and deal only with regulated, secure, U.S.-based exchanges.
Thanks for listening; we welcome your calls and questions.
