US gross domestic product (GDP) expanded by 1.2 percent in the second quarter, a pace which suggests that economic growth will need to accelerate significantly to meet the consensus expectations. This lackluster economic growth makes the economy vulnerable to external shocks.
The stock market continues to shrug off economic weakness, with the S&P 500 trading at a price-to-earnings multiple that’s 17.5 times the Bloomberg consensus earnings estimate for the next 12 months—higher than about 95 percent of all monthly observations since 1976.
Concerns about the US economy, coupled with the uncertainty engendered by the upcoming presidential election, suggest that the risk of a pullback in the broader market remains elevated. Meanwhile, the actual process of the UK exiting the EU will also produce negative headlines that could spook investors.
Our cautious outlook has curbed our appetite for putting new money to work in the current environment, with the exception of gold-mining stocks and other hedges. However, this downtime provides the perfect opportunity to research names we’d like to add to the Wealth Builders Portfolio and Lifelong Income Portfolio on a pullback.