Third quarter expectations: The experts weigh in

The potential market headwinds

Crossmark Global Investments' Victoria Fernandez on the outlook for stocks.

As the experts predicted, volatility returned to the markets in the first half of the year. But, even while the major U.S. stock markets experienced some gyrations, they managed to close higher for the second quarter.

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Over the second quarter, The Dow Jones Industrial Average gained 55.56 points to 24,271.61. The S&P 500 rose 2.07 points to 2,718.37. The Nasdaq Composite added 62 points to finish at 7,510.3.

The gains in the quarter were modest, so what are market experts anticipating for 3Q? The consensus seems to be that the U.S. economy remains strong, with lots of positive economic data points to support this conclusion. When it comes to the negatives, politics and the potential for a trade war is on the top of market experts’ minds.

Here is what the experts are expecting for the third quarter and the second half of 2018.

“Buckle up, as the calendar isn’t doing anyone any favors over the next few months. In fact, out of the four-year Presidential Cycle, the next quarter has been among the worst for stocks,” explained LPL Research senior market strategist Ryan Detrick.

But, he added that with expanding earnings, strong housing data, improving retail sales, and near-record highs in confidence, “We see very little reason to expect a recession over the next 12-18 months —let alone next quarter.”

Brad McMillan, chief investment officer, managing principal, at Commonwealth Financial Network, stated, “For the stock market, the rest of the year could be quite exciting, in both a positive and a negative sense. I expect the U.S. equity markets to end the year with moderate appreciation from levels at the end of December—around 3,000 for the S&P 500 as a base case. On a relative basis, earnings growth should continue to improve on the heels of tax reform and economic expansion. Assuming no further shocks from North Korea or Italy, valuations may well rise back to previous highs.”

“As we move to the latter half of 2018 we also are getting later in the investing cycle, and everyone knows what comes after “late-cycle.” In conversations with investors there seems to be some concerns that markets and the economy are due for a negative turn, mainly because the expansion has been positive for so long, now north of 9 years, that the party must be coming to an end. We don’t see things that way. For the second half of the year we anticipate single digit returns in equity markets, and favor tech, energy and financial stocks,” according to Jeff Carbone, managing director at Cornerstone Wealth.

Chief Investment Officer Christopher Hyzy, CIO for Bank of America Global Wealth & Investment Management (Merrill Lynch and U.S. Trust), commenting on the positives said the U.S. economy is the healthiest it has been in almost 10 years. “Business confidence is high, which increases capital expenditures. That should stoke further growth and productivity, and help keep a lid on inflation. Consumer spending, which accounts for about 70% of U.S. gross domestic product (GDP), is likely to rise because last year's tax cut bill is putting more money in consumers' pockets. We also expect above trend global economic growth. All of this bodes well for corporate earnings, which we think will take stock prices to the next level.”

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“We believe the big fiscal stimulus package from President Trump and the Republicans should keep the economy humming along, with above-trend growth through the middle of 2019,” said Russell Investments.

In Wells Fargo’s mid-year update, they stated, “We currently see more opportunities in U.S. equities than in either international developed market equities or emerging market equities. When it comes to global growth they added that they still expect it to be positive. “We expect the global economy to post widely positive growth in 2018 based on broad gains in household spending and business investment, accommodative credit conditions, and buoyant business and consumer sentiment.”