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Market Perspective - June 2018


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Market Perspective - June 2018

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Market Perspective - June 2018

  1. 1. Market Perspective – June 2018 Experience Insight Impact Overview: As we approach the middle of 2018, we look back and evaluate the state of the markets. This month we focus on the current environment for earnings growth, the normalization of volatility and other factors which may be driving current trends. 1
  2. 2. Earnings Update Experience Insight Impact 2 With Q1 earnings season complete, one can see that companies in the S&P 500 demonstrated strong operating performance with sales up 8.16% and earnings up 23.72%. With earnings expectations high in the midst of anticipated benefits from tax reform, it is easy to dismiss the health of the underlying fundamental growth. The year over year revenue growth was the highest first quarter growth since 2011. Also, all sectors continue to advance profitability. Energy and Materials sectors continue to rebound and Technology growth remains robust. toto Source: Bloomberg
  3. 3. Earnings Growth Projections Experience Insight Impact 3 The chart above shows historical sales and earnings growth (to the left of Calendar Quarter 1, 2018 noted by “CQ1 18”), current quarter growth (CQ1 18), and future trends (to the right of CQ1 18). As reflected, analysts expect current CQ1 18 to potentially be a peak, although growth should remain strong through early next year. Source: Bloomberg
  4. 4. As Labor Markets Tighten… Experience Insight Impact 4 Labor markets continue to tighten, potentially putting pressure on margins down the road. In the meantime, the economy continues to look strong with labor trends improving. Source: Bloomberg
  5. 5. Interest Rates Are Rising Experience Insight Impact 5 In addition to the potential that earnings growth has peaked (albeit remaining quite strong), interest rates have also risen. Above, the chart to the left shows the Fed Funds rate rising while the chart on the right shows the expectations for future increases. Source: Bloomberg
  6. 6. Volatility Has Normalized Entering 2018 Experience Insight Impact 6 With rates rising (and a less supportive monetary policy), earnings growth potentially peaking and labor markets tightening, market volatility appears to be normalizing in 2018 following an unusually non-volatile 2017. The chart above shows that through mid-June, we have already seen 35 days where the S&P 500 has moved more than 1% (either positive or negative). Last year there were only 7 such days.
  7. 7. Market Perspective – June2018 Experience Insight Impact Conclusion: Currently, growth remains strong in U.S. equity markets. However, market participants are always attempting to discount future expectations. The environment appears to be normalizing, which should create continued volatility. Investors should remain flexible in order to capitalize on a wide variety of opportunities in various asset classes, as they undoubtedly will present themselves going forward. 7
  8. 8. Disclaimer Experience Insight Impact Opinions expressed in this commentary may change as conditions warrant and is for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. Consider seeking advice from a professional before implementing any investing strategy. 8