As we have entered the second half of 2017, we have seen record highs in the equity markets. Earnings have begun to report this week, with the trend of beating the street so far. An expected increase in earnings suggests stronger growth ahead. This positive trend could continue given the pullback in the dollar. When we see declines in the US dollar, as we have this year, it helps boost earnings of US companies that sell products overseas.
However, when we look at bond markets we see that Treasury yields have fallen so far this year. When Treasury yields fall, it typically implies that we will see slower growth.
Source: Bloomberg, as of 7/18/2017. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
So should we put more credence in the stock indicators or bond indicators? We typically say that the bond market is smarter. The stock market may continue to tick upwards, but at some point we may see a correction to see stock levels get more in line with the actual underlying earnings of companies.
We are positioned to withstand an inevitable rise in interest rates and and while we are prepared to see a correction in the stock market, we have not gone underweight.
Markets continue to give mixed signals as investors around the globe try to measure true economic growth as well as the impact of global interest rates. As always, a comprehensive plan is your best bet for navigating any environment. Please reach out to us if you want us to take a look at yours.
Maeve Beard serves as Senior VP of Advisor & Investment Support at Pinnacle Trust. She is also a member of the Investment Committee. You can reach her by email at [email protected] or by calling the office at 601-957-0323.