Market Outlook: 2nd Quarter

By Kate Warne April 19, 2017

The stock market has continued to rise and is near all-time highs. What might lie ahead for investors? Investment Strategist Kate Warne offers some perspective on 2017 so far:

  • The bull market in stocks – The current U.S. bull market started more than eight years ago. It’s now the second-longest bull market and has survived many pullbacks without experiencing a 20% drop. Bull markets have frequently ended when bubbles burst or recessions emerged – and Edward Jones doesn’t think either is happening today. Better economic growth and rising U.S. company earnings have supported the long-running bull market, which we think has room to run further.  But the low volatility investors have enjoyed since late last year may not last, due to geopolitical risks, slowly rising interest rates and uncertainty about the Trump administration's pro-growth policies.
  • Rising interest rates – The Federal Reserve raised short-term interest rates as expected in March. This is good news for investors that the Fed believes the economy is strong enough to handle slightly higher interest rates. As long as inflation doesn't rise sharply, Edward Jones expects the Fed to continue a slow, patient pace of short-term rate increases, especially if it also starts to reduce its bond holdings, another way to slowly remove the stimulus it has been providing to the economy. Although they're still very low compared to history, long-term interest rates have been rising since last summer, following more than 35 years when long-term interest rates were generally declining. Rising rates could lower the value of your fixed-income investments, but don't avoid bonds. Bonds play an important role in helping to reduce your portfolio's volatility over time, which can help you stay invested if stock market volatility increases.
  • International investing – Many investors have focused on near-term uncertainties, including geopolitical risks and elections, and have potentially overlooked improving international economic growth. Over the past few months, economic indicators suggest the start of a synchronized global rebound, which is a good sign for international equity investments. And after lagging for several years, international stocks performed better than U.S. stocks in the first quarter, as the dollar stabilized and foreign earnings improved. International equity investments have increased the chances of positive returns over time, and Edward Jones thinks they're attractively valued today. If appropriate for your situation, consider adding broad-based international equity investments to your portfolio.
  • What to watch this quarter – Many investors are feeling more optimistic, which is great news. But don't let your emotions alter your long-term investment strategy. The outlook is good, but there’s likely to be more volatility ahead. Stay prepared by making some adjustments, including rebalancing back to your desired mix of stocks and bonds, reducing high-yield bond investments and adding international equity investments, if appropriate.  While stocks could remain calm, remember that pullbacks were frequent in the past, and they offer opportunities for investors to add stocks at lower prices.

Important information:

Investing in equities involves risks. The value of your shares will fluctuate, and you may lose principal.

Special risks are inherent in international investing, including those related to currency fluctuations and foreign political and economic events. Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity.

Diversification does not guarantee a profit or protect against loss.

*Source: Bloomberg, 1985-2016. U.S. large-cap stocks represented by the S&P 500 Index

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