The stock market turned in a stellar performance during the first half, up about 17% through the end of June and the strongest showing in more than two decades.
That’s worth taking a moment to consider. The US stock market hasn’t had that kind of run since 1997, when a roaring rally in dot.com stocks was gathering steam.
That explosive growth in stock prices is all the more remarkable given the escalating US-China trade fight and rising geopolitical tensions from Venezuela to Iran.
On top of that, the current bull market that started in March of 2009 is pretty long in the tooth, more than a decade old.
All that said, there are lingering worries about the future direction of the US stock market.
For starters, there’s the big falloff in US corporate earnings since last year, thanks to rising global trade tensions and slower growth at home.
In April, the IMF slashed its global forecast to the lowest point since the 2008 financial crisis. Economists at the IMF see the U.S. economy decelerating to 2.3% this year, versus 2.9% in 2018, and to 1.9% in 2020.
Nor are US stocks anybody’s idea of cheap right now.
Take a look at the forward price-to-earnings ratio for the companies that trade on the S&P 500 Index. As the Wall Street Journal points out, stocks are pricier than average over the past 10 years.
Where will the stock market head next? Many investors are looking ahead several weeks, when the Federal Reserve may opt to cut interest rates for the first time since the financial crisis.
With corporate earnings and the global economy slowing, in my view it may fall to the Fed to deliver the next adrenaline shot for the US stock market. If it takes a pass, watch out.
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