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The combination of China trade-truce euphoria and a dovish Fed have the U.S. markets sitting at highs, and yet it still doesn’t feel right. This could be because the rest of the world is slowing down around us, or because the S&P 500 just broke decisively above its September 2018 high a little less than a month ago.

With sentiment high and liquidity flowing, it’s hard to bet against the market right now, or against the U.S. consumer who keeps chugging along at a frenzied pace. You could say uncertainty is now elevated because there is no longer a new catalyst to drive the market higher, and yet there is a sense of a building global monetary easing that could reinvigorate the current rally.

Valuations are bit higher than they were a year ago, but the 10-year Treasury is 90 basis points lower. As yields declined bond flows have increased, and as the market hits highs outflows from equity funds continue. Investors are de-risking, which could prove to be premature should we see a full resolution of trade tensions and Fed easing, which could lead to greater borrowing and lending, a concomitant increase in money growth, and a greater ability for the market to rise while the economy expands. Without this happy sequence of events, we may be mired in a TINA (There Is No Alternative) market for the foreseeable future.

Finally, we are entering Q2 earnings season and prospects are looking mediocre at best. Upward earnings revisions are weaker than a year ago, and we will soon learn whether or not companies have adequately guided the Street’s expectations down ahead of reports. As we cross the halfway mark of the summer doldrums, volume should slow and volatility could spike again. We will continue to look for opportunities in the “late cycle” space, which includes technology and consumer staples.

Please let me know if you have any questions via email or phone at 804-774-2087, Jesse.Ellington@middleburgfinancial.com.

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