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2018 Equities Update – Risks and Opportunities

By Robin M. Diedrich August 15, 2018

This year, we’ve experienced higher market volatility but also continuing economic growth. In this type of environment, where can you find long-term opportunities in stocks? And what is the current outlook on the market?

Market trends in 2018

We’ve seen several market trends continue through 2018:

  • The U.S. economy is growing at a solid pace, with the healthy labor market serving as a backbone to this relatively long expansion.
  • Incomes are growing from higher minimum wages and high demand for workers.
  • The unemployment rate remains around 4% as the economy added nearly 1.3 million jobs during the first half of 2018, an acceleration from last year.
  • Consumer confidence is likely to remain high in such an environment.

Recent tax reform has had a visible impact on the earnings of U.S. companies and has provided a catalyst for investment. The new law also gives companies with an international business a lower tax rate benefit to bring back their overseas cash.

Edward Jones believes markets will likely continue to rise through the remainder of the year due to these factors. However, we also expect volatility along the way as ongoing trade disputes between the U.S. and its trade partners create angst in the markets and the competitive landscape shifts for a variety of companies. Overall, we think the U.S. economy should grow by 2.5% in 2018, benefiting from higher business spending and still-strong consumer spending.

Which sectors have benefited so far?

The technology and consumer discretionary sectors have been by far the two best performing this year. During the first half of 2018, each returned over 10%, well ahead of the broader S&P 500’s return of around 2.5%. At a macro level, both the technology and consumer discretionary sectors are benefiting from continued economic growth and tax reform.

A number of large tech companies collectively have hundreds of billions of dollars held overseas. The opportunity to bring this cash back at a lower tax rate creates an attractive opportunity for large tech companies to return this additional cash to shareholders by buying back their stock, paying dividends or reinvesting additional dollars into their businesses. Additionally, the tech sector continues to benefit from strong business spending on technology.

In the consumer discretionary sector, Amazon is driving the performance of this sector so far this year. However, a number of retailers and other consumer companies are benefiting from lower corporate tax rates and healthier consumer spending.

Stock focus list: Our best sector ideas 

The Edward Jones Stock Focus List highlights our best ideas from different industry sectors. We choose these stocks on based our analysts’ conviction around a combination of factors, including their ability to provide above-average earnings growth, improving fundamentals in their business and attractive valuation of the stock.

If you’re interested in exploring the stocks on this list, your financial advisor can talk to you about whether any of them are appropriate for your portfolio. But more importantly, he or she can help you build a portfolio that matches your long-term goals, investing time frame and risk tolerance.

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 and financial situation. Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates, and investors can lose some or all of their principal.

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