We hope you have been able to find some relief from these warm days and have plans to finish up your summer enjoyably.
Investors who have been following the stock and bond markets this year might be led to believe the economy is on shaky ground. Despite higher levels of volatility, the economic data points still indicate a solid American economy. Last week U. S. stocks reached a historic milestone, having surpassed 3,453 days without a correction of 20%. Now this bull market is the longest on record, exceeding the previous record from October of 1990 to March 2000. That record ended when valuations of tech stocks disconnected from earnings and the Dot-Com bubble burst.
We believe growth rates in the U.S. and the global economy likely peaked in the first half of the 2018. While the economy remains strong, there are warning signs. The protectionist trade disputes and rising tariffs have certainly increased tensions but yet to materially impact economic growth. No one knows how long the rhetoric and tariffs will last and when or if they reduce capital spending by corporations. The agreement with Mexico and an expected agreement with the European Union should put more pressure on China to compromise and reach their own new trade agreement. Trade uncertainty is still a wildcard, but we do not feel a lengthy trade war is likely. This uncertainty and the requisite financial market volatility will likely continue until the mid-term elections are behind us.
After a rapid increase in bond interest rates late last year and in the first part of 2018, U.S. rates have momentarily leveled off since the spring. How much further interest rate increases become a headwind for stocks will depend on the speed and magnitude of the change in yields. Last week, Fed Chair, Jerome Powell confirmed their "measured" interest rate increases will continue and the Federal Reserve does not see any global risks present that will change this plan.
Despite these concerns and the negative political headlines, consumer spending is surging and industrial production is recovering from the slow-down in 2015-2016. The latest advance in stock prices have been driven by strong corporate earnings and solid economic growth. Your well diversified Pacific Wealth Management investments are positioned to participate in this continued growth. Our bond holdings remain a buffer to cushion future stock market volatility when it arrives.
Please feel free to contact us if you have any questions regarding your investments or the news of the day. We encourage you to take advantage of your personal financial website, Pacific Wealth Management's Compass Center, if you are not doing so already. This great resource can help simplify your financial world while keeping you better informed.
Your Pacific Wealth Management team wishes you a great Labor Day holiday.
James C. Kuntz, CIMA®
Mark C. Hill, CFP®, CDFA®
Co-founder, Wealth Advisor
Justin C. Kuntz, CFP®, CDFA®
Director of Financial Planning