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July Month in Review
Well if you sold in May, in line with the “Sell In May And Go Away” annual investor phrase, you would have missed the second best month of the year for the S&P 500 (+2.06%), the Dow Jones Industrial Average (+2.68%), and the Russell 3000 (+1.89%). If you had any sort of global exposure you most likely also missed the even better return of the MSCI World ex USA (+2.98%). Meanwhile you would have grabbed the unexciting returns of the Barclays US Aggregate Bond Index of (+0.17%) or thereabouts, depending on your “safe-zone” investment strategy1.
July brought with it many good economic reports for June, keeping investor confidence high and momentum to the upside. Consumer spending, which is still the largest contributor to economic growth in the US, saw a rebounding 2nd Quarter. The jobs report as well blew away expectations, contributing a healthy 220,000 jobs to the already full pot, strengthening again the income potential of the overall consumer – which should in turn continue to strengthen consumer spending over the coming months. While we did see wages grow at a slightly less-than-expected pace, we still believe that wages will have its day in the near future, allowing fears of no inflation to subside quickly, and the Fed to be as trigger-happy friendly as we would want them to be. The ISM Manufacturing Index had an extremely high reading for June of 57.8, much higher than expected, showing that our economy is doing just fine.
Both the Federal Reserve and the European Central Bank left rates unchanged, as we should continue to see a diverging policy of tightening in the US, and loosening in Europe.
We continue to be optimistic about the US economy, however we are finding much more of our attention beyond the boarders in Europe and Emerging Markets. The trepidation of diversifying globally over the three years prior to 2017 have all but ceased and while our underweight to international holdings remains, we have looked at making a second move into international waters, following our increase we made towards the latter half of 2016. Our overall thematic excitement is centered simplistically around the fact that valuations are trading at long-term discounts internationally, vs. above averages in the US; and at the same time dividend rates are higher and central banks are being more accommodative.
Our main hesitation continues to be in our energy exposure and the “double dip” nature of the environment we are seeing play out this year. Energy companies are hurting and there is an ever increasing conversation among oil and gas participants that this is the worst slump in the energy sector experienced over multiple generations. We will maintain our eye on this as we look to reposition portfolios through the rest of the year.If you have any questions or wish to discuss our thoughts in more detail, please do not hesitate to reach out.
LPL Financial Advisor
Vice President, AGH Wealth Management
The economic forecasts set forth in the article may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk, including the loss of principal. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.