Market Outlook: 3rd Quarter

By Kate Warne July 19, 2017

Now that we’re halfway through the year, what can investors expect going forward? Investment Strategist Kate Warne offers her insights on the outlook as well as some recommended actions for investors.

A strong first half - In the first six months of this year, U.S. stocks had their best performance since 2013. The return on the S&P 500 was 9.3%, helped by earnings that increased 15.3% in the first quarter, and are expected to continue to rise solidly. The technology sector led the gains in large-cap stocks, powered by strong revenue growth and rising profits. Looking more broadly, international markets generally outperformed. Both developed-market and emerging-market stock returns exceeded U.S. stocks, reflecting better economic growth globally. We think the fundamental supports of economic and earnings growth remain positive, helping stocks continue to rise over time.

International outlook - Political risks are rising around the world, and those headlines may make it difficult to see the signs of better global economic growth and brighter prospects in many countries. Edward Jones believes international developed-market stocks look more attractive than U.S. large-cap stocks due to their higher dividend yields, better expected earnings growth rates and lower valuations based on price-to-earnings ratios. Edward Jones thinks savvy investors can benefit by looking beyond the worries and adding international equity investments.

Economic optimism - The economy continues to grow modestly, supporting the optimism of consumers, investors and corporate executives. More people have jobs, pushing the unemployment rate down to 4.3%, the lowest rate since 2001. Optimistic consumers and companies tend to spend and invest more, which is good news. As expectations rise, though, the chance of a disappointment also increases, possibly leading to higher market volatility. We’ve enjoyed a long time with low volatility, when stocks have risen pretty steadily without stumbling. But greater uncertainty about economic policy here and in many other countries, worries about military conflicts, and rising interest rates are a few reasons to think stocks might bounce up and down going forward. Since Edward Jones believes the stock market is likely to continue to rise based on positive fundamentals, pullbacks are likely to offer opportunities to add investments at lower prices.

Rising interest rates - Edward Jones expects rates to keep rising, but slowly – and remember that overall, they’re still quite low. The Fed raised short-term interest rates in December, March and June, but long-term rates declined in the first half of 2017 as inflation edged down. Low inflation allows the Fed to remain slow and patient when raising short-term rates, and we expect it will continue to tighten monetary policy at a cautious pace, extending this long-running economic expansion. Low inflation and low foreign interest rates are helping keep long-term interest rates low too. As a result, bonds can continue to play an important role in your portfolio by providing diversification, stability and income. Make sure you have the right mix of bonds and stocks for your comfort with risk and long-term financial goals.

Actions for investors - The outlook is good, but there’s likely to be more volatility ahead. Your long-term strategy should ensure you’re prepared for a wide range of possibilities. With stocks near all-time highs, it’s a good time to determine whether you need to make some adjustments, including rebalancing back to your desired mix of stock and bonds, and adding international equity investments if appropriate.

Important Information:

This information is for educational and illustrative purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives, risk tolerance and financial situation.

Investing in equities involves risk. The value of your shares will fluctuate, and you may lose principal. Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.

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    Quarterly Market Outlook - 3rd Quarter - 2017

    Our perspective on important market and economic topics to help you make decisions affecting your long-term financial strategy.

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