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Quarterly Market Update - July 2018


Another quarter has ended and I wanted to share some thoughts.  As always, feel free to share it.

  • The S&P500 Forward P/E ended June at 16.1, down from 16.4 in March.  We are now officially average as the 25-year average is also 16.1%.  While the current P/E looks at current Price to Earnings ratio, the Forward is just that – it is looking ahead to predicted Price to Earnings.
  • S&P Earnings per Share and Profit Margins are at highs, at least from the data I see that goes back to 2000.
  • Share Buybacks are approaching levels from 2007.
  • Small Cap Growth continues to be the best performing asset class this year up 9.7%. It is also the best performing since the market low of March 2009 with growth of 478.6%.
  • Large Cap Value is the worst performing asset class this year down 1.7%.
  • When it comes to Sectors, Consumer Discretionary is leading the way this year up 11.5%.  Yes, it is ahead of Technology even though Tech gets all the love by the media.  Telecom is the dog down 8.4%.
  • The S&P 500 is up 2.6% year to date.
  • The current economic expansion is 108 months in length, which puts us at the second longest expansion since 1900.  The average expansion is 47 months.
  • The Year-over-Year change in GDP at 2.8% is slightly ahead of the average of 2.7%, but well ahead of the average of 2.2% since the start of this economic expansion.
  • I’ve mentioned before how the growth of the working age population numbers make me nervous.  Remember, more workers equals higher GDP.  The forecast for growth of working age population is 0.2% for the next decade.  Not only is this below the average for the last decade, but it has been revised downward by the Census Bureau.  If we aren’t going to have more people we really need a kick in productivity.  Bring on the robots, but not the Terminator kind!
  • As of the end of May, unemployment has continued to tick down and ended at 3.8%.  Wages had a pretty big jump up to 2.8% from 2.5% earlier this year.
  • The highest unemployment rates are for those who do not have a high school education, although their unemployment rate is 5.4%.
  • Since we are doing the college visits the 2015 data for income based on education caught my eye.  It is $35k for high school, $65k for bachelor’s and $92k for advanced college.
  • The Fed is predicting unemployment will drop a bit more to 3.6% by the end of the year and hold at 3.5% for the next two years.  They are also forecasting GDP will finish the year at 2.8% and then pull back to 2% in 2020. Inflation forecasts are right at their sweet spot of 2%.
  • When it comes to raising interest rates, it is important to see what a 1% increase in this rate does to fixed income (bonds).  Floating, Convertibles, and High Yield all have positive total returns while all other main types of bonds are negative.  This is all based on historical data.
  • All major fixed income sectors have been flat or negative this year except for High Yield, which is only up .2%.
  • Both International and Emerging Markets are negative for the year. 
  • 64% of people feel they need at least $500,000 saved for retirement.  The average person over the age of 55 has $122,000 saved.
  • From 1998-2017, a 60/40 portfolio averaged 6.4% annually, the S&P 500 did 7.2%, and the average investor was at 2.6%, slightly ahead of inflation.
  • I’ve talked about the magic of compounding before.  The cumulative return of the S&P 500 for a 1-year period is 7%, 5-year period it is 42% and for 20-year period is 301%.