While the S&P 500 had a first half of a year so good that it paralleled the last one, which was at least 10 years ago, and the Dow Jones Industrial Average hasn’t seen a June like this since 1938, underneath this impressive rally is a trend that continues to irk investors, economists, and analysts, according to J.P. Morgan.
“The hard data is tracking reasonably well. We came into the year thinking we’d get a flat Q1, and we got 3% in US GDP. The second quarter is tracking somewhere around 2%, 2.5%. So I think it wouldn’t be unreasonable, given that we think the trend growth rate of the US economy in the long run is more like 1.5% to 2%, for that to come down in the back half of the year. And so I think you know, we’d expect some deceleration from here. But in terms of what you’re seeing, it’s actually quite good,” said Ben Mandel, global strategist at J.P. Morgan Asset Management on CNBC.
Mandel believes that while there are a number of factors at work in the market that could sway it one way or another, the likelihood of all of them uniting to create forward momentum in Q3 is slim.
“Well, I think equity markets are going to reflect a confluence of factors. So markets have toggled back in forth between the trade war, what the Fed is going to do, and the outlook for growth, And I guess the point is you could have positive news on at least one of those, probably two of them, but probably not all three of them because of the interrelations between those three things. That’s what economists like to call a trilemma. And so the idea is that there are guardrails around how good or how bad things can get for global equities, and it puts you in the middle of the distribution, looking for things that perform well in that space,” Mandel explained.
Jay Jacobs of Global X Funds agrees with Mandel and, adding, that we may be headed for an earnings recession as well.
“I think there’s definitely a possibility for upside if there is a deal that comes out of the G-20, you could see a broad rally. But barring any sort of landmark agreement, there is very little hope going forward. We are entering into an earnings recession that is likely to extend from Q2 into Q3, and if there is no trade deal on the horizon, I don’t know how people justify continuing to buy into this market,” Jacobs said.
Investors looking to stave off decay in their portfolios might consider a gold ETF like SPDR Gold Shares (GLD), or a bond ETF like the Vanguard Total Bond Market ETF (BND).
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