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Economic & Market Outlook  

July 2018

Small cap stocks are outperforming large cap stocks. Small cap companies do business mainly in the U.S. so their earnings have not been negatively affected by the rising U.S. dollar and trade concerns.

U.S. equities were up 0.62% in June. The unexpected strength in the U.S. economy has helped drive U.S. stocks and the dollar over the past several months.

We expect that the equity markets will be volatile for the remainder of the year, as pending trade tariffs are adding uncertainty to the economic outlook.

In the second quarter five stocks - Facebook, Amazon, Apple, Microsoft and Alphabet - were responsible for more than half of the S&P 500's 3% return.

S&P 500 earnings are expected to have grown 20% in the just-ended second quarter, the second fastest pace since 2010. We expect this will provide positive support for stocks.

The biggest drama recently is the fear of a full on trade war. The conflict may ultimately be limited by the reality that neither side can materially hurt the other without hurting themselves.

The U.S. dollar is strengthening because of the Fed’s interest rate hikes, causing emerging market assets to decline. Higher interest rates make it more expensive for overseas borrowers to service their debts.

The Fed’s preferred inflation measure reached the Fed’s targeted level of 2%, for the first time in six years.

Most investors still expect two additional rate hikes this year but some think the Fed should pause, taking notice of the flattening yield curve and muted inflation expectations.

We favor international equities based on improved economic growth and attractive valuations relative to the U.S. markets.


  • This information has been compiled using data and other statements of fact derived from sources which we believe to be accurate and reliable. However, such data and other statements of fact have not been verified by us, and we do not make any representations as to their accuracy or completeness. Any opinion expressed herein reflects our judgment at this date and is subject to change.

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