T2 Asset Management



2 Trans Am Plaza Dr., Suite 200
Oakbrook Terrace, IL 60181





Market Commentary

JULY 2018



We trust everyone had a happy and safe Independence Day. Summer is in full swing and so are U.S. markets. As we highlighted in last month’s commentary, markets appeared to be stabilizing despite all the headline risks and were looking to move higher in the near term. This has continued so far this month and has even been a bit perplexing as the first shots in a pending trade war were fired last week. It seems that the market believes this will either die down and have no result or may even lead to better trade conditions for the U.S. Either way, we can’t argue with the market and it certainly doesn’t seem worried about much. Below we see the S&P 500 Index which has been bouncing back and forth for most of this year. It still has not taken off, up just 1.7% for the first half. However, it is hard to disagree that the bear market had its chances recently and failed to deliver.




On the economic front, we see the same steady progress that we have been noting for quite some time now. Retail sales for the month were projected to come in at 0.4% and instead brought a figure that was double the expectations at 0.8%. Gross Domestic Product (GDP) had expectations of 2.0% annual growth and that was exactly what was reported. Finally, the jobs report was looking for a gain of 190,000 jobs and came in at 213,000. In fact, the prior two months were adjusted higher by nearly 50,000 jobs as well. All is humming right along with the economy for the time being.


Earnings season kicks off during this coming week, and we will see if we have reached the peak of the earnings cycle as some have predicted. If not, it is likely that we will see more of the same from the markets and a likely test of the January highs in the S&P 500 Index. Despite all the worry out there about political headlines, the economy and earnings are just steaming right along.


We continue to believe in the overall importance of the Federal Reserve and global central banks in this process. We have pointed out numerous times that the stock market is a bit overvalued, this bull market is one of the longest on record, etc. There are any number of things to point out that could cause an investor to walk away at this point. However, there are gains to be had if we just keep looking at a few things. Outside of a true global shock to the system, the bull market will end when the Federal Reserve raises interest rates one too many times. That day will come when bonds offer a better return than stocks.


In the world of portfolio management, we know that money has to go somewhere. Most large managers will not or are simply not permitted to just put their portfolios in cash. However, at some point, investors will open their eyes and realize that bonds are offering a better return than stocks. That point is not quite here yet. While a 10-year bond and the earnings on the S&P 500 Index are close right now, it still leans towards stocks. For the time being, outside of global shocks, it appears we are going to get another leg higher if earnings and the economy continue to accelerate.








Disclaimer: Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of securities. Investments involve risk and are not guaranteed.