STOCK FUNDAMENTALS STILL SUPPORTIVE
John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial
We expect stocks to move higher over the second half of the year. Stocks already have had quite a run in 2019, buoyed by a return to fundamentals, with the S&P 500 Index up 17.4% year to date through June 28 for an 18.5% total return. The decision by the Federal Reserve (Fed) to pause rate hikes was the catalyst for the reversal, as market participants no longer feared that the Fed might unnecessarily restrict growth. U.S. economic data also have generally supported a continued economic expansion, while businesses continue to find ways to effectively navigate the environment. Generally upbeat first-quarter corporate earnings results gave investors another fundamental reason to bid stocks higher.
EARNINGS AND VALUATIONS
The earnings picture changed in May, however, after US.-China trade talks derailed. Due to the increased risk of a prolonged trade war, on June 10 we slightly reduced our S&P 500 earnings per share (EPS) forecast for 2019 from $172.50 to $170, which would represent 5–6% EPS growth if realized. The forecast is still above Wall Street’s consensus of $168, which we suspect is too low considering the mostly positive fundamental environment. Better than expected earnings may...