At the end of Q2 2017, the Federal Reserve (FED) continued to tighten monetary policy by increasing the overnight lending rate from 1% to 1.25%, the highest level since 2008. The FED believes the economy is strong enough to support this increase with solid job gains, a declining unemployment rate, an increase in household spending and business investment. Again, the market showed little reaction to this increase as the move was likely priced in. Popular opinion still expects one more hike this year.
With what seems like a constant stream of bipartisan conflict, one would expect an increase of volatility in the markets. However, volatility in the markets is at its lowest level since 2007 as the market continues to break through to record highs. Even, with the future of Health Care and Tax Reform up in the air, the market remains largely unphased.
The projected full-year 2017 EPS (Earnings Per Share) remains firmly above the 10% threshold. Unlike, 2015 and 2016, where estimates fell from high single digits to below zero in the first 5 months, 2017 projects to be a strong year for the companies of America. As earnings increase, the stock market usually follows.
Much like the 1st half of 2016, large cap growth stocks lead the way with technology up over 20% YTD, and FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) continuing to dominate headlines and returns. Energy continues to be the laggard with oil falling nearly 24% since the beginning of the year.
The International and Emerging Markets, as expected, have outperformed the Domestic market the 1st half of 2017. After vastly underperforming every year since 2013, Emerging Markets appear to be reverting to the mean, beating US stocks by about 8%.
If you have additional questions about the market, the economy, your portfolio or investment goals, don’t hesitate to call us. The future is never going to be known for certain, but it’s our mission to help you make the most appropriate decisions for your personal situation.
– Garrett Carter, CFP®