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Equity Market: The second quarter ended well despite some troublesome periods driven by emotions and headlines.  April was a good month that continued the trend in the first quarter. Then news emerged that trade talks between the U.S. and China had run amok and the market reacted badly and lost ground. Then Chairman Powell announced the change in Federal Reserve policies. The market rebounded strongly with one of the best months of June in its history.

The Dow Jones Industrial Average was up 2.31% for the quarter and 14.09% for the year-to-date.  The S&P 500 gained 3.79% in the quarter and 17.35% for the year. The Nasdaq Composite index was up 3.58% in the quarter and 20.66% for the year. The Russell 2000 index was ahead 1.74% for the quarter and 16.17% for the year.

As always, corporate earnings are critical to the stock market outlook. On the positive, first quarter earnings of the S&P 500 companies were about the same as in 2018. But most companies are now reporting or predicting earnings for the second quarter that are lower than last year. The outlook is the same for the third and fourth quarters. It could be the first year since 2016 that corporate earnings are lower than the previous year.

Stock prices have been pushed higher by the first-half market frenzy. The price-to-earnings ratio is now about 18 times this year’s expected earnings – up from about 15 at the end of last year. The earnings outlook does not offer much promise to lower that ratio again.

So, we are looking at possible economic slowing in the U.S, lower earnings, and richer stock prices. We think the stock market will stay relatively flat for the rest of 2019.

Preferred Equities: We remain focused on large cap companies with strong balance sheets, sustainable cash flows, and credible business models. Companies that pay attractive dividends are central to our strategy.  Some of the sectors getting our attention:

HEALTH CARE: The larger uncertainties regarding national health care policy make us cautious about much of this sector. But we like select names in bio-technology and medical devices.  

TECHNOLOGY: We are cautious about this sector – especially given the various issues   in the big tech names  – but areas such as communications equipment  and semi- conductors have our interest.

FINANCIALS: Our focus is upon regional banks and non-bank financial services.  Prices are reasonable for many of these stocks.

Other Equity Approaches: We are interested in Exchange Traded Funds as a part of client portfolios. These vehicles allow us to manage volatility but still provide exposure to value or growth stocks. For some clients, we also partner with firms to co-invest in private equity strategies.

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