A recent report that came across my desk (LPL Research) showed that the S&P 500 Index has closed at 42 news highs since July 11, 2016. That’s the day the S&P 500 hit its first all-time closing high in almost 14 months.
A quick review of data from the St. Louis Federal Reserve reveals the index of 500 large companies added five additional closing highs as July came to a close.
Low interest rates and a Federal Reserve that is reluctant to aggressively raise interest rates has been a support for the market.
But I believe the most important long-term driver of stocks remains corporate profits. Note that I said long-term driver. We will experience bumps along the way. For example, we have had four declines in the S&P 500 Index that totaled less than 20% since the bull market began in 2009.
However, the economy did not sink back into a recession, and corporate profit growth continued in a general upward trend, preventing a more serious decline, in my view.
With the end of July, Q2 S&P 500 earnings are forecast to rise a strong 10.8% versus a year ago (Thomson Reuters). While that’s down from a stellar 15.3% in Q1 (Thomson Reuters), nevertheless it’s the second double-digit increase in as many quarters. In addition, we’ve been witnessing an uptick in revenue growth, which has been aided by an acceleration in global growth.
Put another way, the fundamentals have been dominating the investment landscape. We expect the now more than eight-year-old bull market to potentially continue, but that does not remove the nervousness investors may feel buying stocks at or near all-time highs. Nonetheless, historical data provides reassurance that investors with time horizons of more than five years stand a very good chance of making money over that time period, even if they have the misfortune of buying ahead of a downturn. This is especially true for investors taking a gradual approach and using dollar cost averaging.
Bottom line, don’t let those headlines about all-time highs scare you and keep you from investing to pursue your long-term financial goals.
Table 1: Key Index Returns
Dow Jones Industrial Average
S&P 500 Index
Russell 2000 Index
MSCI World ex-USA**
MSCI Emerging Markets**
Bloomberg Barclays US Aggregate Bond TR
Source: Wall Street Journal, MSCI.com, MarketWatch, Morningstar
MTD returns: June 30, 2017-July 31, 2017
YTD returns: Dec. 30, 2016-July 31, 2017
**in US dollars
I hope you’ve found this review to be educational.
Let me emphasize again that it is my job to assist you! If you have any questions or would like to discuss any matters, please feel free to give me or any of us at RetireRight Pittsburgh a call.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risks, including the loss of principal
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Material prepared by Horsesmouth LLC.