QUARTERLY STOCK MARKET OUTLOOK
FIRST HALF IN REVIEW.
GUEST BLOG / By EdwardJones.com--Rising oil prices helped commodities outperform other asset classes over the past year, and equities outperformed fixed income. But overall, returns over the past year were helped by strong performances in the second half of 2017, followed by lower returns or small losses in the first half of 2018.
Small-cap U.S. stocks outperformed large-cap U.S. stocks as investors became optimistic they would benefit from the corporate tax cuts and be less affected by higher tariffs.
Second-half outlook – Interest rates, inflation and earnings are three keys to the U.S. outlook, which we think is generally positive. Slightly faster U.S. economic growth (averaging about 3%), supply disruptions and higher energy prices are
likely to boost inflation short-term. However, we don’t believe inflation is rising quickly enough to worry the Federal Reserve, which we expect will continue quarterly short-term interest rate increases, and long-term rates should keep rising modestly.
The impacts of the tax cuts and better economic growth helped
S&P 500 earnings gain almost 25% in the first quarter, and we expect doubledigit growth in 2018.
Stronger dollar hurts international returns – After declining in 2017, the U.S. dollar rose in the first half of 2018, lowering international equity and fixed income returns, and they lagged their U.S. counterparts. In addition, emerging market
equities fell due to concerns about rising tariffs and the possibility of a trade war. We think global growth remains solid, however.
Will a trade war disrupt the outlook?
We continue to believe most of the threats to raise tariffs are negotiation postures and will be resolved over time without a
significant slowdown in global growth. But the current increases have hurt some severely. Remember that even if additional higher tariffs are imposed, while it may be painful, companies and consumers will react quickly and adjust to the new environment.
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