"Have patience. Everything is difficult before it is easy." - Saadi

The rollercoaster has been a bit easier lately. The S&P and the Dow are up about 2% through the end of May, while volatility has declined. The reward for being patient when, in February, both indexes were down almost 15%, is now clear. Still, ~2% is hardly a reason to get excited about investing, continuing the altogether dreary markets since the beginning of 2015. Nobody likes to have to be patient for that long. But there are good reasons to believe that the wait may not last much longer.

The first reason for optimism is that headwinds are turning into tail winds. As this newsletter has discussed before, the S&P 500 as a whole struggled with earnings last year from the double whammy of a strong dollar (international sales account for ~40% of S&P 500 revenues) and the dramatic decline in energy prices (the energy sector represents ~10% of the S&P 500). Since the start of this year, the dollar has declined and energy prices have begun to rise. That bodes well for earnings, especially in the last half of the year.

The second reason for optimism is that recent economic data show that there are significant areas of strength in the economy. Consumer spending experienced its biggest month-to-month increase this April since October of 2009. Payroll growth remains robust. Exports and industrial production have turned up. Auto and home sales are strong. Interest rates remain low and energy prices, though off their lows, remain favorable.

The third reason is that, in the long-run, optimists have always won when it comes to investing in U.S. stocks. The history of investing strongly suggests that a patient, dividend oriented stock portfolio provides the best long-term returns of available alternatives. And the history of out-performance is likely to increase moving forward because low-interest rates have so dramatically reduced the forward return potential on fixed income, the primary alternative to stocks.

Lackluster though it may be the U.S. economy and stock market continues to outperform most of the rest of the world with few exceptions. There's plenty of gloom out there in Europe, China, Japan, etc. But that does not mean we are due for a bear market. All bear markets are associated with recessions. And we've never imported one from abroad. If interest rates were high, if oil prices were in the triple digits, if the dividend yield on stocks were lower than bond yields, then playing defense would be worth considering. But none of that is true. Things are looking up.

Brennan R. Redmond, CFA - Senior Vice President


(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities.)