July 14, 2017

Quincy Krosby: Third Quarter CheckupAs with any checkup these days, whether it’s with your car, your physical exam or stock market performance, there are always so many charts placed in front of you that the effect can be dizzying, if not paralyzing. Entering the third quarter, headlines warn of lurking market dangers, yet there are just as many technical charts that signal, perhaps after a summer retreat, that the markets are set to march higher again. Quincy Krosby, Prudential’s chief market strategist, leads us through potentially positive and negative indicators in her 3Q 2017 market commentary.

Krosby writes that in terms of seasonality, the third quarter is not, statistically, the market’s strongest phase, and a pullback or two are as “normal as summer thunderstorms” that help cool things off before a typically more welcoming fourth quarter. The market has remained resilient despite geopolitical risk, domestic political gridlock, and rising interest rates.

The second half of 2017 has begun with household income inching 1.4 percent higher on the back of strong stock and mutual fund performance. While that bodes well for the 10 percent of the U.S. population that owns 80 percent of stock market holdings, student and auto loans, as well as the high cost of health care, are dampening consumer discretionary spending.  
Meanwhile, in Washington, the clock is ticking for lawmakers and the White House to enact their plan for tax reform by the end of 2017, which could be an important catalyst for markets. Despite the Federal Reserve’s newly found resolve to bring rates to a “neutral” stance, Chair Janet Yellen, at her core, remains data dependent, and will pause if the need arises.
Oil prices are down as supply outstrips demand, but Saudi Arabia’s newly named crown prince, Mohammed bin Salman, may try to orchestrate a deal to push prices higher to support the kingdom’s partial initial public offering of Saudi Aramco in 2018. A slowdown in China’s participation in global finance could lead to slowdown in deal making, as well as bringing pricing down along with it.

Markets are always climbing the proverbial wall of worry; it’s what gives markets opportunities. A portfolio that offers diversification for things that keep us up at night, as well as things that demonstrate the strong, capitalist nature of our economy should help keep us all insulated from the possible return of volatility in the market’s least favorite season.

To read the full outlook, click here: Third Quarter Checkup. Want to speak with Quincy Krosby about what’s happening in the markets? Please contact Lisa Bennett at 973-802-2894 or Dara Scerbo at 973-367-9318.