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2nd Quarter 2019 in Review

We saw a wild ride in the markets during the past quarter. It started strong and then May came along and wiped out a lot of the gains for the year. Fortunately, we have had a great June and it made up the lost ground.

In a horse race, the Dow, the S&P 500 and the NASDAQ are all neck and neck in the contest to set record highs. However, the small cap Russell 2000 lags far behind, and is more than 10% below last year’s peak. The disparities do not end with size. Through May, our research found companies with no profits rose over 20% this year, while those with earnings were down over 7%. We believe this will reverse but it is a worrying anomaly.

Talking about profits, they have been pretty skosh this year. The first quarter saw profitability advance by only about 1% on the S&P 500, while second quarter results have started weak and are not expected to show much improvement. If earnings are not driving the market, why have stocks rallied recently?

Market Outlook

The markets are likely anticipating some positive events. The Federal Reserve has clearly indicated they are considering rate cuts in the near future. Investors are also expecting some kind of trade deal to unfold with China. Lastly, in spite of worries by CFOs and negative signals from small stock prices and an inverted yield curve, we feel it is obvious a recession is not really being considered.

Risk however, is being considered. This is the reason why larger stocks have been outperforming. Investment advisors are pretty negative on stocks and have built up their cash positions. Volatility and exposure to leverage has also taken on added importance.

We see the glass as half full. The rally has momentum and investor fears can help prop the market up for a while. However, valuations are high and too much good news is already priced into the stock market. We will continue to hold stocks with favorable outlooks, but we do not think it is time to rush in. As we see it, it is best to remain prudent for now.


The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. Dow Jones Industrial Average is an index that tracks 30 large, publicly-owned companies on the NYSE. NASDAQ is a global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index.

Opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
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