Market Analysis – July 2017

Market Analysis – July 2017

Thomson Reuters estimates that corporate earnings for the S&P 500 may again reach double digits for the second quarter of 2017. In the first quarter of this year, S&P 500 earnings grew by 15% compared to the first quarter of 2016. As of this date, with 60% of S&P500 corporations reporting, the second quarter earnings appear likely to come in 11% higher than the second quarter of 2016. Christopher Probyn, Chief Economist for State Street Global Advisors says it best: You could argue that the stock market investor overestimated Trump but underestimated earnings. For global stock markets, corporate earnings are what matter most as Washington, D.C. fades into the background.

Without any help from Washington on infrastructure spending, Caterpillar Inc., the world’s largest heavy machine maker, boosted its earnings expectations for 2017 based on growing global demand in construction and mining. DuPont Co. and U.S. Steel joined in the rally based on global demand for products ranging from soybean seeds to flat-rolled steel. As foreign economies have grown stronger, the U.S. dollar has become weaker, which helps sales of U.S. goods overseas. For example, a stronger Euro can pay for more U.S. goods and services when the dollar is weak, as it is now. This combined with years of cost cutting at U.S. corporations helps improve earnings.

At their July meeting, the Federal Reserve passed up an opportunity to raise interest rates again, in part due to stubborn, low inflation measurements. This helps to keep borrowing costs low, which also stimulates economic growth.

The case for international diversification keeps growing. Due to the economic recovery in Europe and a pull-back in banking regulations, European bank shares have risen by 50% over the past year. Even Spain is now growing Gross Domestic Product faster than the USA. At Bell, we have been increasing our international exposure, and our best performing funds in July specialize in foreign investments.

For Stable Growth accounts, our Class 4 selections averaged between 1 to 2% gains in July, and our Class 5 bond selections are all positive for 2017. So far municipal bonds are outperforming their taxable counterparts.

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