Growth Stocks in July | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Market Shows Strength in First Half

It’s hard to believe that the first half of 2023 is now in the record books.

After the dismal year in markets that was 2022, many investors were expecting more of the same in 2023 with all the forecasts of an impending recession.

However, markets usually like to trade in contrast to the consensus narrative, and the surprise was a strong market in the first part of the year with the benchmark S&P 500 index up nearly 15% and no recession in sight.

The real question is – what to do now as we look forward to the second half of the year.  Is this a new bull market that will power us to new all-time highs – we are, after all, still 10% below the market peak reached at the beginning of last year.  Or, are the concerns investors had heading into this year simply hiding in the background as speculators chase high-flying tech stocks at nosebleed valuations right before the bottom drops out?

Our view is that long-term investors can stay the course, but should probably rebalance portfolios away from some of the best performing (and expensive) stocks and into more defensive (and cheaper) assets.

With investor sentiment becoming more exuberant despite the fact that second earnings estimates continue to deteriorate, there is some elevated risk that volatility will return as the summer wears on.

Featured Insight: International Investing

Most U.S.-based investors are focused on investing in the United States, and why not?  It’s more familiar, and therefore more comfortable investing in companies you know, but it has also been the best place to invest – especially during the past 15 years or so.

Over the past 10 years the S&P 500 index of U.S. stocks has outperformed the broader international equity market by roughly 15% per year.

If you haven’t done so already, now might be a good time to add some international exposure to your portfolio. After such a long stretch of underperformance, international assets now provide a compelling value relative to the United States.

Rather than attempting to pick individual stocks domiciled in foreign countries, it likely makes sense to use a broad based index fund or mutual fund to provide broad diversification, reduce risk, and limit tax headaches – you can find plenty of reasonable options online with a quick Google search.

Looking Ahead: Growth Stocks in July

July has been a good month for growth stocks.

In fact, the tech-heavy Nasdaq index of growth companies has been higher in July for the past 15 years in a row with a median gain of nearly 5% for the mid-summer month.

While this could obviously be a completely random coincidence, sometimes seasonal trends have a way of embedding themselves into the market dynamic.

With that being said, once a particular trend or seasonal market anomaly becomes common knowledge, the market has a way of surprising investors by throwing a curveball.

It’s difficult to bet against such a strong seasonal pattern, but with growth valuations stretched and liquidity conditions tightening, perhaps the 15-year streak for growth stocks in July could be in jeopardy.

Copyright 2024 The Business Journal, Youngstown, Ohio.