There is an abundance of “noise” in the world causing the financial markets to be rather reactionary.
The on, then off, now on again North Korea summit, leaving the Iran nuclear agreement, imposing trade tariffs, and political upheaval in Spain and Italy are just a few of the noisy issues that markets have had to contend with during May.
Despite all the noise, May was a positive month for the equity markets with the S&P 500 gaining 2.1% for the month. However, the equity market is stuck in a range and trading sideways between 2,650 and 2,750 on the S&P 500 due to all the uncertainty caused by the noise.
On the economic side, the noise doesn’t seem to be impacting the US economy. The US economy remains in a slow but steady expansion and has a tailwind of low unemployment, low interest rates, 2017’s corporate tax cut and continued deregulation. What could derail the U.S. economy? Most likely it will be a self-inflicted wound. It could be a trade war caused by the latest round of tariffs imposed by the US. We see this as more a trade “skirmish” than a full-blown war. Our hope is that cooler heads prevail and the U.S. and its global trade partners commit to negotiating these complex issues in good faith rather than relying on the blunt force of a tariff. The other concern is the Federal Reserve and how they manage reducing the monetary stimulus in the economy. This will be done primarily by raising short-term interest rates. The question is can they do that without short-circuiting the economy.
Overall we continue to favor equities over fixed income based on solid corporate earnings growth and slightly higher interest rates. We are shifting more towards small cap companies in the US as they are less impacted by trade tariffs. International equities continue to offer better valuations than US equities, but we are balancing that with the political drama in Spain and Italy. It may not be the smoothest of rides, but we wouldn’t be surprised to see foreign outperform domestic over the next year or two. We are also adding some commodity exposure, primarily industrial metals and energy due to the continued economic expansion both here and abroad.
As always, feel free to call us with any questions or concerns.
June Calendar of Events (comments and additions for future months are always welcome)
- June is LGBT Pride Month. Let’s all work towards acceptance and inclusion of people regardless of their sexual orientation.
- June is also National Safety month. Schools are closing for summer and folks will be outside more so be mindful on the roads. Perhaps take a first aid or CPR course.
June 14th Flag Day
June 17th Father’s Day – wishing all father’s, grandfathers, and great grandfathers a wonderful day.
June 21th Summer begins – let’s see what Mother Nature has in store for us
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Sources: Nottingham Advisors, Bloomberg
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