Record Levels of Growth
by Ed Hill
If it seems like the financial markets have been
off to an unusually strong start to the year—you
are correct. The S&P 500 Index has risen for four
consecutive months, resulting in the strongest
start to a year in more than 30 years! To be fair,
the early gains included recovery from oversold
market conditions in December, but a steady
combination of monetary policy, economic
performance, and corporate profitability have
pushed the S&P 500 to record levels.
While we’re pleased with the new highs, part
of our job at LPL Research is to keep an eye on
what could temporarily disrupt solid market
performance. As such, we emphasize three
key areas when making investment decisions:
market fundamentals, technicals, and
valuation. A review of each suggests to us that
the market can continue to provide longer-term
opportunity, but with the possibility for shorterterm
volatility. In any event, we will continue
to emphasize the importance of diversified
portfolio strategies for suitable investors to best
take advantage of market conditions.
We remain encouraged by market
fundamentals. U.S. economic data have been
steadily improving in recent months, with signs
of stabilization in manufacturing and gains in
employment, personal spending, and business
investment. In addition, the Federal Reserve
appears set on keeping interest rates at current
levels for the near future, allowing market
interest rates and fiscal tailwinds to help support
domestic activity. This has been a healthy offset
to concerns of slowing global growth, with a
potential U.S.-China trade deal remaining the
wild card.
Market technicals, which include sentiment,
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pricing, and volume patterns, currently indicate
solid momentum, while a variety of industry
surveys suggests investors possess a healthy
balance between appreciation and skepticism
of the recent market gains. Although the S&P
500 recently hit a new high, it took more than
six months to exceed its previous record set
last September. Historically, when the S&P 500
has had at least a six-month “pause” between
records, returns over the following 12 months
were above average, which may indicate good
news for summer markets.
Our third important criteria is market
valuation. Rather than simply looking at the
price-to-earnings ratio (P/E) when making
equity investment decisions, we stress the
importance of looking at the P/E relative to the
current level of interest rates and inflation, which
both remain well below historical averages. As
a result, although the market may be trading at
record levels, we don’t think it is overvalued.
It’s been quite a run for equity markets in
the first four months of 2019. A quick review of
market fundamentals, technicals, and valuation
suggests a near-term pullback may be possible.
However, suitable investors could use volatility
as an opportunity to rebalance diversified
portfolios or add to current positions to help
work toward longterm investment goals. ☐
Contact your trusted LPL financial
advisor. For more info see ad p. 29.
Edward Hill Wealth Management, LLC
1148 Seven Lakes Dr. • West End
Office: (910) 466-9140
Fax: (910) 466-9139
L.S.Crain
No. 135 The Pinehurst Gazette, Inc. p.5
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