US stocks were buffeted by crosscurrents in the first half of 2018.
There were Trump Tweetstorms, geopolitics in China and Korea, G-7 trading-partner fights with Canada, our largest and most durable trading partner. Add to that a blistering attack on the press (what happened to the First Amendment?) and a White House withdrawal from communication (as in no follow-up questions from reporters) – all this, and we even saw the president front-running the market on the recent employment report release.
Governmental chaos disturbed markets from time to time in the first half – but markets proved resilient. The flipside that enables that resilience includes higher earnings, a clearer Fed path, a slowing of the policy transition at the ECB, relaxation of US banking-system rules, front-loaded fiscal stimulus, repatriation and growth originating from the new tax code. Markets love the earnings outlook, and they love the predictable path of monetary gradualism.
We expect 2019 earnings to be about $170 for the S&P 500 Index. Think of that figure with a band of $165–$175. We expect subsequent years to have mid to high single-digit compounding growth rates. That path puts the index above 3000 by 2021. Our US ETF accounts are mostly fully invested. Some small cash reserves are in place and may be deployed at any time. Of course, all this can change at any time since we live and invest in a fluid and uncertain world.
David R. Kotok
Chairman and Chief Investment Officer
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