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

Week in Review: A Resilient Market

There have been plenty of headlines recently that could have given investors reasons to want to reduce risk and to take stock prices lower.

It seems like every other day there is an announcement regarding new tariffs from the Trump administration, which is something we’re told we should be afraid of.

In addition, earlier this week we had an inflation report that came in a bit higher than expected, causing a pop in longer-term interest rates, which is not something stocks typically like to see.

And while some of these headlines drove an initial move lower in stock market indexes, the pullbacks have all been very short lived – in some cases just a matter of minutes before prices have rebounded only to trade at much higher levels.

A market that won’t go down despite seemingly bad news is a market that tends to have solid underpinnings, even if the underlying reasons aren’t fully understood at the moment.

The market is always looking forward, and at least for the time being, it seems to like what it foresees.

Week in Review: Suitability

Beginning and novice investors tend to look at the world in absolutes.

I just want to make the most money possible, they think.

This tends to lead to decision-making that typically neglects the risks inherent in the financial markets.

This is especially true after a period of strong performance for the stock market when it seems like prices will continue to do nothing but go up.

When investing money it is important to consider the suitability of an investment.  Do the characteristics of that investment suit you?  If you panic at the first sign of loss, you should probably select more stable investments like short-term bonds or high-quality dividend-paying stocks.

On the other hand, if you have a stomach for risk and you won’t need to withdraw funds for many years into the future, by all means, focus on growth-oriented assets – just understand that sometimes their value can fall significantly.

Looking Ahead: Keep an Eye on Earnings

Despite the market’s resilience that I mentioned, there is one thing that is keeping us somewhat cautious in the short-term … earnings.

Earnings estimates for the next several quarters have been dropping recently, and they’ve been dropping at an accelerating rate versus the past couple of quarters.

At the beginning of the year, S&P 500 first quarter earnings were expected to be up 5% versus the prior year, now the estimate is for only 1% growth.

Similarly, the second and third quarter estimates are both down from over 8% expected growth to 7%.

Lowered expectations are easier to beat, but we’ll have to keep an eye on this trend to see if it gets any worse, especially in light of stock prices that keep rising.