Jul 26, 2019
During the second quarter the popular indexes, S&P 500 and Dow Jones, recovered and slightly exceeded their previous high levels set in 2018. Investors have panicked early and often since 2009 with any sign of coming economic weakness. There have been four declines of 20% from 2009 through 2018. Each decline has been followed by new recovery high levels in the popular indexes. This cautious attitude has kept overall speculation restrained and less enthusiastic than in later stages of previous bull markets. It has also contributed, though it is not the primary cause of this bull market's old age. Bull markets do not die of old age, they are usually killed by the Fed raising interest rates and tightening credit.
The bond market rallied taking the 10-year Treasury bond to a 2.00% yield. The rally was the result of the Fed's anticipated cut in interest rates going into the July meeting along with the fear of a trade war, weaker global and domestic economic indicators, and possibity of recession. The decline in interest rates gave support to equity prices.
We don't think there is a recession pending but that assumes there is not a trade war. Usually stocks perform well in the year prior to an election year and in the election year itself. If there is a close political contest the markets will tend to trade at a slight discount until there is a higher degree of certainty about the outcome. The greater the certainty of the outcome, the stronger the market convcition in either direction.