The latest three month returns in the U.S. and international stock markets can be viewed with two very different attitudes.  The first is that many indices (though not all) produced a loss for the quarter, and where there were gains, they tended to be very small.  On the other hand, the losses, where they occurred, were too small to wipe out the gains of the previous two quarters, meaning that most investors have still made money so far this year.

Whether that will continue is anyone’s guess, but in today’s uncertain political and economic environment, it’s easy to feel like we all managed to dodge a bullet and are holding onto our gains with gratitude.

There appears to be great uncertainty among investors about the Trump impeachment hearings, China trade tensions, drone strikes in Saudi Arabia and a messy “Brexit” across the pond.  U.S. economic growth has cooled to a 2% annualized rate, and we are experiencing the first contraction in manufacturing in three and a half years.  Exports have also been weak—a casualty of the China trade war.

At the same time, we are also experiencing the strongest labor market in several decades, with the pace of layoffs and the unemployment rate near a 50-year low.  And consumer spending has been extremely strong, rising an estimated 4.6% year over year.  Adjusted pretax corporate profits were up 3.8% in the second quarter (the most recent period for which we have statistics).  Economists are hardly in consensus, but many predict that the economy will continue growing to the end of the year at least.

There must have been many times when the soothsayers in China looked at the tea leaves and didn’t see a clear pattern—though it is uncertain whether they then made up a plausible story for the Emperor.  We aren’t inclined to try to make up a story here; the future of the markets is uncertain at the moment, with no reason to panic, and no reason to be surprised if a bear market were to start tomorrow.  History has shown that bull markets tend to be longer and steeper than bear markets, which means that holding on tight in choppy times tends to be the winning strategy.

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Scott Carlson