Mid Quarter Commentary

Halfway through the second quarter and asset prices continue to drift higher as strong corporate earnings and largely stable economic data has proven that the bull market run is not over just yet. The few headwinds that remain are uncertainty surrounding trade wars and global growth concerns. For the most part, investors are in a period of strong confidence as the May University of Michigan Consumer Confidence registered at a highest rate since 2000. The Federal Reserve basically is stuck in a holding period where they cannot raise interest rates until inflation and wage growth pick up quickly. This is allowing investors to feel ease as any further tightening in the markets is not likely to happen. In April, the S&P 500 gained 4.05%, outpacing most other global equities as the United States is better positioned economically than most other countries. With the Fed on pause, interest rates remain under pressure as the 10 year US Treasury touched a 52 week low rate of 2.37%. Add to the mix a 1Q19 GDP rate of 3.2% that smashed analysts' estimates of 2.3% has allowed for investors to find comfort in domestic equities.

The second half of the quarter may not be so prosperous as most of the good news seems to be priced in as the S&P 500 that touched a new all-time high in April, may be poised to pause and stay range bound during a seasonal soft period for stocks. With 85% of earnings completed for the quarter, investors are watching every word by President Trump regarding China trade war. Tariffs inevitably will create higher prices for consumers and the potential threat for China to retaliate remains high. Most investors want to see a quick resolution to this matter. Investors have focused on finding stable investments at a reasonable valuation; this has led to strong relative performance in consumer staples, REITS and utilities in the first half of May as investors have taken some gains because of the aforementioned trade war talks. We expect some choppy markets for the next six weeks as investors wait out trade talks and geopolitical risks as sanctions on Iran crude exports that has put pressure on OPEC discussions. Although most likely short term hiccups, these events are causing most asset prices to pullback, which could cause a snowball effect. Any significant pullback would be an opportunity to buy the dip as these problems should be temporary.

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