17 Jul 2018 MIDYEAR STOCK MARKET OUTLOOK-SECOND HALF RALLY?

The current environment looks favorable for strong earnings and stock gains.
We do expect volatility, but steady economic growth provides a strong backdrop and
the potential for opportunity.

The first half of 2018 saw the return of equity volatility after the docile trading patterns
of 2017. The surge in bond yields after the January jobs report, along with the initial
trade concerns in late March, resulted in the first market corrections (a pullback of at
least 10.0%) since the Brexit vote in June 2016. Though higher bond yields caused
market disruptions, rising market interest rates (especially from relatively low levels)
have typically been associated with an improving economy and higher stock prices.
As a result, when viewing market volatility in the context of steady economic growth,
it is not something to fear, in our opinion, but to embrace, as temporary market selloffs
may provide suitable investors with opportunities to rebalance portfolios toward
long-term targets.

Given that the Fed is well on its way to unwinding accommodative measures, we
encourage investors to focus on the fiscal tailwinds of favorable taxes, regulation,
and government spending, while identifying companies that are willing and able to
take advantage of these developments.

View the full weekly market commentary here.

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