Market Outlook: 3rd Quarter

So far this year, markets have seemed to be following a long and winding road, with a few sharp turns along the way. Investors faced higher volatility, policy changes, rising interest rates and global concerns that seemed to obscure the solid fundamentals of global economic and earnings growth. What might the second half of the year bring?

3 developments to watch

  1. The tariff increases that are taking us closer to a trade war, not just with China but with many other countries as well.
  2. The uptick in inflation and stronger economic growth leads us to expect the Federal Reserve will keep raising short-term interest rates quarterly.
  3. The leading indicators for economic and earnings growth.

Although we are moving into a later part of the market cycle, we think the outlook remains positive – not just for the rest of the year but further ahead.

Trade tensions in the news

Trade tensions and tariff announcements have continually worried the markets this year. Edward Jones doesn’t think a trade war is likely, but it is a serious concern, since the U.S. and several foreign countries have raised some tariffs. As a result, consumers and businesses are paying higher prices and in some cases facing shortages or looking for alternative sources.

At this time, many more tariff increases have been announced than implemented, and we expect negotiations can resolve many of the disagreements. As a result, we haven’t changed our view that the fundamentals of economic and earnings growth are improving in the U.S., due to the impacts of the tax cuts and higher government spending.

Interest rate outlook

When interest rates start to rise from low levels, stocks can continue to benefit from better economic and earnings growth. And there are opportunities, since higher rates have made short-term CDs more attractive. Bonds can still perform well, so don’t let rising interest rates keep you from owing investment-grade bonds, putting a little more into cash and short-term bonds. Fixed income helps stabilize the value of your portfolio during stock market pullbacks, which is one reason it’s so important to own a mix of both based on your specific situation and comfort with volatility.

Market volatility: More of the same

We’ve returned to more normal market volatility, which typically happens as we move later in the economic and business cycle. As markets shift from one short-term worry to another, stocks tend to rise and fall, sometimes sharply. But we think the underlying fundamentals remain strong, supporting rising stock prices over time.

U.S. economic growth is likely to be above 3% short-term, and we expect double-digit earnings growth to continue through the rest of the year. Global growth also appears solid after slowing somewhat in the first quarter, supporting our recommendation to add international equity investments if needed. If policy headlines or a return to normal volatility are making you nervous, you may need to make some adjustments to your portfolio so you can stay calm and invested in all types of markets.

Is the end of the bull market in sight?

Several trends suggest we’re in the later part of this cycle. As the economy accelerates, inflation rises somewhat, and monetary policy becomes less supportive. Keep in mind that stocks tend to perform well in this phase – supported by stronger earnings and economic growth. Late cycle doesn’t mean too late to invest.

In addition, better valuations and cautious investors suggest we’re not too near the end of the bull market – there’s more road ahead, even if we see some patches of rough pavement. That’s why we recommend investing in the right combination of equities and fixed income to help you move forward toward your destination.*

Important Information:

*Investing in equities involves risks. 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. There are risks involved when investing in bonds, 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.

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 and financial situation.

Find a Financial Advisor

Find a Financial Advisor

Select a State and then enter a last name

    Get a Stock Quote

    Get instant quotes for your favorite companies and mutual funds.

    Quarterly Market Outlook - 4th Quarter - 2018

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

    Read more