Summer Slump or Summer Sizzle?

If all you saw were the headlines you might think that “trade wars” or “a flattening yield curve” was pushing equities to the brink of a new bear market as the U.S. economy teetered on recession. However, the data suggest the U.S. economy remains strong and the S&P 500 Index is sitting comfortably in positive territory year to date, having jumped nearly 5% since the start of the “sell in May and go away” period.

“With today being the first official day of summer, can this surprise summer rally continue?” asked LPL Research Senior Market Strategist Ryan Detrick. “We think it can. When you have small caps, high-beta stocks, recent initial public offerings (IPO), and technology all leading – that isn’t the hallmark of a looming bear market. Not to mention the tailwinds of fiscal policy are still primed to support economic growth for the rest of this year and likely well into 2019; and possibly beyond.”

Yes, the list of worries is long and well known: market sentiment may becoming quite optimistic, industrials are lagging, the yield curve is flattening, trade issues continue, and emerging markets are flashing potential issues, but we believe the positives outweigh the negatives and continue to expect double-digit equity returns when all is said and done in 2018*.

That said, the S&P 500 Index has finished within 0.5% of the prior session’s close for the last 10 trading days, the longest streak this year; which suggests the coil is tightening and more volatility is likely coming. But as the LPL Chart of the Day shows, when the S&P 500 has been up 3% or more heading into the start of summer** (like 2018), the full year has been positive an incredible 35 out of 35 times. Not to mention the rest of the year has actually been stronger than the average year. That should comfort investors, regardless of the headlines.


*Please see the Outlook 2018: Return of the Business Cycle publication for additional description and disclosure.

**As of June 21

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