Global equity markets moved higher in July, fueled by higher earnings and strong economic growth. Bond yields rose a bit causing the typical bond index to be slightly negative. Yields will continue to bounce around as stronger economic data keeps the Fed on course to continue raising rates. My stance remains to stay away from interest rate sensitive and long-dated bonds and for keeping maturities/duration short.
Both U.S households’ income and consumer spending continued to make strong gains. Retail sales, industrial production, construction spending, and continued employment strength helped propel the economy to boost GDP 4.1% for the 2nd quarter.
Employment growth has been robust with payrolls averaging just over 200,000 net new jobs per month in 2018. The latest unemployment rate was at 4.0% and showed that many workers are re-entering the workforce. The manufacturing sector has seen above-trend gains.
Market volatility likely will continue as the market seeks to strike a balance between the stronger economic growth we’re experiencing and the unknown effects of potential higher interest rates and inflation. Trade issues that should have been addressed years ago add to market disruption. Inflation remains under control at near 2.0%, which is at the Fed’s target.
Even as the markets face heightened volatility, fundamentals for U.S. companies remain strong. Equity valuations are very reasonable at just under 17x this year’s earnings. Balance sheets are strong, dividends are increasing, and earnings growth is at an all-time high. As long as these fundamentals remain in place, equities should move higher with pullbacks being short-lived.
“Parker Personals”: My son Colter and his wife Sloan moved to Nashville this past weekend. He starts Vandy Law School on the 13th. He will continue his Southport duties in a limited role. My youngest daughter Jeanna recently returned from her 2nd missions trip to Haiti. She starts her junior year next week. Although it’s been 26 years since I last threw a baseball as a professional, apparently, I can still throw things. Currently, I am the #1 ranked Master’s javelin thrower in the world in the 55-59 age group. A Frenchman is a close second. I encourage everyone to stay active and if you are 50+ and able, consider participating in your local senior Olympics or Master’s games.
Best Regards, Clay