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5 Things to Expect in the Second Half of 2018

Will Ashworth

As we close out the first half of 2018, the SPDR S&P 500 ETF (NYSEARCA:SPY) is up 4.9% year-to-date through Jun. 12, the third-worst annual return since 2008.

It’s important investors evaluate their portfolios looking for blind spots that might be corrected by following one or more of these midyear investing trends. 

While I can’t guarantee your returns will perk up in the second half of the year, I can assure you it’s going to be a bumpy ride.

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Good luck.


Midyear Investing Trend 1: M&A Deals to Accelerate

The Jun. 12 U.S. District Court decision to allow AT&T Inc. (NYSE:T) to buy Time Warner Inc (NYSE:TWX) for $85 billion just set the table for more big M&A deals in the second half of the year.

Acquisitions already in the works, such as CVS Health Corp (NYSE:CVS) buying Aetna Inc (NYSE:AET) for $69 billion, likely have clear sailing as a result of the decision. Deals currently in negotiations will speed up with few regulatory impediments holding the parties back.

This doesn’t mean it’s a good thing.

I’m not a fan of AT&T’s blockbuster deal because it adds way too much debt to the business without adding enough synergies, which is often the case with large acquisitions. They tend to overpromise and underdeliver.

If you own a stock you think will be acquired, I’d definitely hold through the remainder of 2018.   

Midyear Investing Trend 2: Banks Will Continue to Be Good Bet

The Fed is likely to announce an interest rate hike 0.25% late Wednesday with speculation it might boost rates four times this year instead of the three forecasted.

We’ve already had one hike in March (0.25% to 1.75%), the expected hike later today, and possibly two more between now and the end of the year.

Who likes higher interest rates? Banks and other financials do.

However, I’d be very selective with your stock picks and opt for quality over quantity. A bank-focused ETF also might be a good play to benefit from a rising tide.

As far as banks go, my favorite is SVB Financial Group (NASDAQ:SIVB), which caters to entrepreneurs and innovators.

Midyear Investing Trend 3: Share Buybacks Will Continue

Through the first five months of the year, there have been slightly more than $500 billion in share repurchases by U.S. publicly listed companies, an average of $100 billion per month, well ahead of the monthly average of $56 billion over the previous 24 months.

Thanks to the cut in the corporate tax rate to 21% from 35%, companies have more cash to buy back their own shares, artificially propping up stock prices.

The problem with this approach is that corporate America is leveraged to the hilt. Instead of paying down debt in the face of rising interest rates, CEOs are opting to feather their own financial nests at the expense of employees.

My advice is that if you are going to invest in companies doing big buybacks, go with those companies with little or no debt because the looming trade war will knock all but the most financially stable to the canvas.

Midyear Investing Trend 4: Institutions Move to ETFs

Once the exclusive domain of retail investors in North America, institutions are jumping onboard the ETF bandwagon.

“In last year’s Global ETF Study, Greenwich Associates projected $300 billion in annual institutional ETF flows by 2020,” stated Greenwich Associates Q3 2017 ETF report.

“The results of the 2016 study suggest the market is firmly on pace to hit that mark. Total institutional fund flows into ETFs will increase as new institutions introduce these investment vehicles into their portfolios and existing users continue to increase allocations to ETFs.”

Whether passive or active, I don’t think there’s any doubt institutional investors will use ETFs either as core investments (robo advisors, etc.) or to fill in those areas where they lack expertise or need more expedient exposure.

Given the acceleration of institutions investing in ETFs, it makes sense to own one of the more successful ETF providers such as BlackRock, Inc. (NYSE:BLK).

Forget the ETFs, buy the ETF provider instead and prosper from the trend.

Midyear Investing Trend 5: Gold Makes a Comeback

A combination of events promises to provide gold bugs with some momentum heading into late stages of 2018 and into 2019, pushing prices in the $1,400s on U.S. dollar weakness, a potential global trade war, overstretched equity prices, and the list goes on.

“As time moves on, there’ll be less and less reasons to get into the US dollar, which will likely reverse some of the flows,” Bart Melek, global head of commodity strategy at TD Securities in Toronto said recently. “We do ultimately think that as we move into 2019, the US dollar will weaken, which is a very powerful fuel for the gold complex.”

If gold does rally to those prices, it would be the highest level since 2013. Something to dwell on for sure.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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