Summertime and the Markets

Here is the same post as yesterday but annotated and edited to be sent out to clients via email.

As political and international events occur, it is common for markets to react. We can expect changes to the markets in each season and each quarter, so how are our summer markets shaping up in light of what is going on?

Summer Market Overview

The best way to describe the markets over the past several weeks is to say that we've been consolidating at higher prices with a more positive bias. The S&P 500 is up roughly 8% since the "Brexit" scare back at the end of June. The market has so far been lodged in a narrow trading pattern since the middle of July. Most of the time we've barely traded beyond a 1% range. Depending on your perspective, we're either consolidating those gains in preparation for the next move up or topping out before we begin some sort of decline.  

How Are Advisors Reacting?

Most of Wall Street seems to be in the decline camp. Professionals just hate this market. In reality, most of them have not been for it since 2008, but perhaps their ire is more intensive this year as money managers and hedge funds have, for the most part, significantly underperformed their benchmarks. For most of these folks, their playbook, worldview, and the way they learned the investment business isn't working right now. I'd venture to guess that most of them haven't quite figured out yet what to do about it.

What Are the Factors Affecting the Summer Markets?

But the extreme negative sentiment isn’t the only factor propelling the markets lately. What else is going on that is affecting market performance?

Corporate Earnings

You read the research, go on the Internet, and talk to business people, and there is a palpable sense that things are improving slightly. Perhaps not to the point of seeing the economy print something like a 3% GDP number, but there is a feeling that maybe this corporate earnings trough we've been in these past two years might finally be starting to turn a bit.

Maybe this growing sense of optimism will prove to be just another false lead, but for now, it's there. If corporate earnings start to come in better than estimated, then those high multiples we have on the stock market may start to look a bit more promising as well.

Brexit and Global Markets

Our international community has been dealt some tough blows, but improved growth consensus seems to be percolating around the globe and not just here in the USA. Brexit didn't turn out to be the end of the world.

2016 Election

The 2016 presidential election has caused some instability as well. As of a few weeks ago, the market has discounted a Clinton victory. If that turns out to be the case, then stocks have the potential to become more volatile should that consensus start to be doubted.

Cash and Market Sectors

Along with the negative sentiments towards the market are very high levels of cash in both institutional and individual accounts.  

Finally, broad participation by different sectors of the markets has been occurring. This is a significant change, as the majority of stock leadership through most of 2015 was very narrowly focused.

What Does This Mean For You?

Truthfully, you should know that we are in the "dog days" of August. In the east coast money centers of Boston and New York, folks in the investment business are mostly interested in their tans right now. They're probably just hoping we don't have some sort of crisis that forces them to leave the beach for the office.

Because of that, these factors may not matter. The big dogs may come back after Labor Day and hit the sell button, and everything will change. Also, we're likely not completely out of the woods regarding the economy or the election. At least for now, stocks bleed sideways, or they bleed higher. What worried investors six weeks ago is now largely forgotten, a bad memory on an August breeze. It's summertime and the living, as they say, is easy.

If any of these factors are worrying you, or you have questions you would like answered, please contact us at 708.488.0115 or by email at lumencapital@hotmail.com.

About Chris

Christopher R. English is a money manager and the founder of Lumen Capital Management, LLC, a Registered Investment Advisory firm. Specializing in investment management and developing customized portfolios that reflect a client’s values and needs, he has nearly three decades of experience working with individuals, families, businesses, and foundations. Based in the greater Chicago area, he serves clients throughout Illinois, as well as Florida, Massachusetts, California, Indiana, and other states. To schedule a complimentary portfolio review, contact Chris today by calling 708.488.0115 or emailing lumencapital@hotmail.com.

Posting schedule next week will be Tuesday, Thursday and maybe Friday depending on a few client meetings.  We'll be back to a more normal summer schedule after that.