S&P 3,000

Well, the S&P 500 finally broke to new highs yesterday and at the same time momentarily breached the psychologically important 3,000 level.  While passing milestones like this gets a lot of news play and commentary on TV or in print, I’ll note this is only a 2% advance from last year’s high water marks set in September.  All the punditry out there proclaiming what a wonderful first half of 2019 we’ve had never seems to mention last year’s rapid decline in the fall or how many were predicting a recession for this year back then.  Last winter in a piece I wrote called "What Went Wrong in 2018"  I said among other things that I didn’t see a recession on the horizon, and I thought that corporate earnings growth would be in the 5-7% range for the year.  As well I said our GDP would be 2.4% in 2019 and that stocks had the potential to advance 10-15%.  I also thought that given the psychology back then there was a potential to retest or perhaps undercut last year’s lows.

Here's how that's panned out so far.   There’s been no recession and 1^st quarter GDP came in at 3.1%. GDP has been slowing and the indicates seem to be showing growth somewhere around 2% in the 2^nd quarter.  We’ll get a better feel on corporate earnings in the coming weeks but I still think that 5-7% number is doable, most likely coming in the back half of the year.   Most broad US market indices are up between 15 and 18% as of this writing.   Finally markets never retested the December lows which I thought was a possibility back then but we did see on average about an 8% decline in broad market indices back in May.  While the economy has likely slowed this quarter from the pace we saw earlier in the year we are still seeing growth.  Add into that the increasing likelihood that we'll see an interest rate cut later this month and you can see why stocks have acted so well lately.  

I think it's possible that could soon enter a period where stocks mark time or even give up a bit of the gains we've seen in the past six weeks.  While anything can happen when we talk about the markets,  stocks rarely travel straight higher forever.  But as I've discussed time and time again there's just too many positive developments under the hood for me to worry at this point about the underlying longer-term fundamentals of the US economy.  More on this in a later post.

I'm publishing this a day earlier due to scheduling issues.  Next post here will be Tuesday.

*Long ETFs related to the S&P 500 in client accounts, although positions can change at any time   We reserve the right to change any of these investments without notice on this blog or via any other form of verbal, written or electronic communication.