Random Thoughts

The current bull market recently set the duration record and posted its first new all-time high since January 26.

As a result, the S&P 500’s performance in August has deviated from the norm, as it gained 2.1% in price through the 24th, vs. the average decline of nearly 1% typically endured in volatile and uncertain midterm election years.

Yet this positive performance has continued a trend-bucking pattern witnessed by investors since the start of the “Sell in May” period on April 29. This bodes favorably for the S&P 500’s performance in September, which has recorded more price declines than advances.

Yet regardless of what the market has done in the months leading up to the midterm election, the post-election period has traditionally delivered a pop in prices. Despite knowing full well that history is a guide and never gospel, investors have been encouraged by the S&P 500’s track record of gaining an average 7.5% in the 4th quarter of midterm years and seeing an increase in price nearly 90% of the time.

Even better, the “500” jumped an average of almost 17% in the 12-months after the election and did so 100% of the time. History aside, we see the S&P 500 rising modestly over the coming year. Factors influencing this outlook include:

The forecast of expanding global and domestic real GDP

A 10% increase in S&P 500 operating EPS in 2019, on top of the 22% growth projected for 2018

The modest uptick in core CPI to an average of 2.5% next year from 2.3% this year

The expectation that the Fed will maintain its accommodation monetary policy even as it gradually hikes rates in the months ahead.