The U.S. equity markets suffered a small setback in the first quarter, but the second quarter brought us back into positive territory, being led by small companies represented by the Russell 2000 index. International markets, however, were negative, likely in large part due to the tariffs being imposed by the U.S. and other countries.
The corporate tax cuts provided a fiscal stimulus in the ninth year of an economic expansion, which is almost unheard of, and it is clearly having an effect. Corporate earnings are projected to increase about 25% over the prior year. Economic activity was up nearly 5% in the second quarter and unemployment has continued a downward trend.
Due to the continually improving economy, the Federal Reserve Board has raised short-term interest rates once again, and has announced plans to continue in September, December, next March and next June.
The flattening yield curve—where longer-term bonds are closer to yielding what shorter-term instruments are paying—is never regarded as a good sign for an economy’s near-term future. Yet, though history often rhymes it rarely repeats. And there are good economic arguments why this time could be different.
Meanwhile, the labor markets are tight that there are more jobs available than workers to fill them. A logical conclusion of this is that eventually companies to share will have to raise compensation higher than the recent past, which will negatively impact company profit margins.
Nobody knows what tomorrow will bring, but everybody knows that bull markets don’t last forever. Now may be a good time to mentally prepare for an end to the long bull run, hoping it ends gracefully.
Meanwhile, proper planning should be on your mind first and foremost. Though investment returns are expected to be relatively low over the coming years, they won’t always be that way. Ensuring your plan is on track for both the short term and monitored to avoid dangers and capitalize on opportunities should yield good results over time.
Modified with permission from BobVeres.com