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Can it Continue?

Stocks were up modestly in July. The tech-focused Nasdaq 100 gained 2.3%, the S&P 500 was up 1.5%, and the Dow increased 1.1%.

Foreign markets sank, however, with the developed market MSCI EAFE index down -2.0%, and emerging markets losing -2.7%. 

U.S markets have been the place to be this year with the broad stock market up 20% through July 31, 2019. But it’s unreasonable to expect this year’s returns to persist long term.

The S&P 500 is now trading at 17 times its earnings over the next 12 months, and this is above the 10-year average of 15 times earnings.

What about interest rates?

Economic growth is slowing with second quarter GDP coming in short at 2.1%, down from 3.1% in the first quarter. The Fed is trying to do its part to stimulate the economy. As expected, it cut rates 0.25% at month-end, the first reduction since 2008.

Investors generally take rate cuts as positive news: rate cuts can provide much-needed economic stimulus, which can lead to higher corporate profits and higher stock markets. But it's rarely that simple or that linear.

What to do at market highs

This could be a good time to prepare for a potential correction by making sure you’re doing enough to manage risk in your portfolios, such as:

  • Reassessing your allocation to stocks and bonds
  • Considering if you have too much invested in too few funds
  • Limiting your exposure to riskier areas of the markets
  • Using stock and bond strategies that can help you adapt when markets change.
The bottom line?

Focus on what you can control and don’t let uncertainty hold you back from your long-term plans.