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Steve's Newsletter

Steve's July 2018 Newsletter

During the first half of 2018: the Dow Industrials was down -0.7%, the S&P 500 was up +2.6%, the NASDAQ was up +9.4% and the Barclays Aggregate Bond Index was down -1.7%.*

That's down from highs of January 26 when the Dow Industrials and the S&P were both up about 6% in less than a month. The Dow is down over 1000 points in just the last three weeks of June. The euphoria of tax cuts; increasing corporate earnings and economic growth have given way to concerns about higher interest rates, a tightening job market (there are now more job openings than unemployed people which could increase inflation), trade wars, market volatility, and geopolitics.

One big concern is surprisingly the NASDAQ. That +9.4% year to date return you see, has been driven almost entirely by a very few stocks: Facebook, Amazon, Apple, Netflix and Google. Take the gains of those five stocks out of the other 3300 in the NASDAQ and the gains would be closer to even for the year. I have been watching the markets long enough to know that anytime you see just a few out-performers in an index, there is a tendency for the markets to contract.

Upcoming corporate earnings announcements for the second quarter are expected to be "outstanding!"  The concern is that the earnings are "juiced" with front loaded tax reductions and stock buybacks (not salary increases) and that the gains are already priced into the stock price equation.

By now many investors are aware of the statistical and historical significance of this being a mid-term election year. The market is currently trending as it has done in the past: Up in the first month or so, then the second and third quarters are weak. However, then the fourth quarter of the mid-term year (2018) to the second quarter of the next year (2019) the Dow Industrials has averaged +20.4%**. As they say: "past performance is no guarantee of future results!"

The Wave

There is a rhythm to the financial markets and it is called the "economic cycle." The phases of a business cycle follow a wave-like pattern over time with regard to Gross Domestic Policy (GDP). Business cycles have four distinct phases: expansion (going up), peak, contraction (heading down), and trough (the bottom, not good). The trough of the last recession was June 2009.

The United States is now in one of the longest Expansion periods since 1945. While we are probably now approaching an economic Peak, it's still too early to say exactly when that will occur. Easing of trade tensions would most likely increase GDP and extend the present market phase.

At Newmarket Advisors, Inc. it has always been my ongoing task to guide you over the waves, both up and down! Together, it is proper risk assessment, diversification, re-balancing and your long term positive attitude that will help you continue to achieve your financial goals!

Have a Great Summer!

Steve Newman

 *   Wall Street Journal  

** Stock Trader's Almanac