Except for a one-week detour in June, it has been a slow grind higher for the U.S. stocks this summer. If you were scared off by Brexit in June, the slowdown of earnings growth in July or the drop in new job creation in August, you’ve missed out as the S&P 500 ran up to a record high and remains close.
Astute long-term investors know the market can climb a “wall of worry.” This summer was filled with plenty of concerns for investors. Inside the market, corporate earnings continued contracting compared to a year ago even while stock prices continued rising. Investors have been willing to pay more money for lower profits and diminishing profit potential. This could be due to earnings declining less than expected – the “not as bad as feared” strategy.
Continued ultra low interest rates also can take some credit. In an investing world with zero or near zero interest rates on bonds, investing in dividend-paying stocks looks attractive – the “risk nothing get nothing” strategy.
Meantime, U.S. economic data has been uninspiring, China’s economic engine remains troubled, Brazil is entangled in several crippling scandals, U.K. voters want to leave the European Union and U.S. voters face a polarizing election season.
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Now, the heart of September arrives in the week ahead. No holiday shortened trading week. Summer is over for investors and September has a reputation for stock market losses. Just add it to the wall of worries for long-term investors.