The S&P 500 Stock Index ended the first half of the year up 17.35%, and on July 3rd it reached a new all-time high of, 2,995.84. This robust rally is remarkable considering the uncertainty regarding the US trade negotiations with China, indications that global growth is slowing, and a potential decline in earnings projections.
The market has been rising partly due to strong earnings growth and accelerating economic activity. Another reason for the market rally is the Federal Reserve’s policy of keeping interest rates low, plus the expectation that the Federal Reserve will lower short-term interest rates further in order to stimulate the economy.
I believe that a good deal of positive news has been priced into the market. My concern is that the future financial environment may become more challenging. These future challenges include: the possibility that business confidence and business spending may slow, the potential of conflict with Iran, the upcoming budget and debt ceiling negotiations, and political uncertainty due to the 2020 Presidential race.
The stock market, making new highs, seems to confirm Fed policy and a positive economic outlook. I believe some degree of caution is warranted, and will be looking pair back over-weighted positions in order to reduce risk.