As August draws to a close, the S&P 500 celebrates two major milestones: An all-time high on the S&P500 Index was made this week, and this marks the longest bull market rally in history at 3,455 days and counting.
The U.S. economy continues to be boosted by the 2017 tax cuts. We have seen a strong labor market, low inflation, strong earnings growth, and consumer spending is on the rise. Second quarter GDP growth came in at 4.1%, considerably higher than trend. Finally, we believe the full impact of the tax cuts won’t be realized until sometime next year. These economic indicators lead us to believe the current bull market has more room to run.
Year-to-Date, Technology, Consumer Discretionary, and Heath Care sectors have led the market higher. While Consumer Staples, Telecommunications, and Materials have lagged.
In the shorter term, we have seen a major pullback in the Energy Sector. This is due to a -9.5% decline in oil prices over the last three months. However, our long-term outlook on oil still remains positive. We remain particularly intrigued with the U.S. refining industry. This is due to new international regulations set to go into effect starting in January 2020. These regulations will be supportive to the refining industries capacity utilization rate and is expected to improve profit margins.
Trending news headlines of late have focused on interest rate hikes by the Federal Reserve, tariffs, trade tensions, and the potential for trade wars. While this has contributed to equity market volatility this year, the U.S. remains one of the top performing equity markets globally, while China is among the worst performers.
We believe one of the biggest potential risks to the economy and stock market is trade. If imports and exports decline as a result of a global trade war, we could see reduced global growth and challenges in global labor markets. A temporary trade truce with the European Union was negotiated. Although, what happens with China, Mexico and Canada remains to be seen.
We remain bullish on domestic equities, and we are closely monitoring the markets and all of our holdings. We will continue to book gains and protect your portfolio by raising cash if equity markets begin to decline. We expect the remainder of 2018 to be volatile, but this is normal. The market remains in an uptrend and our outlook remains positive.
Thanks for your continued support and trust in our team!