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Year Ending Results

Donald Pearson, President, Pearson Capital Inc, is often asked by business publications for his prediction for the market at the beginning of the year. Now with the blended S&P–Nasdaq–Dow up on average about 7 percent, Pearson is asked would he change his original forecast. His answer is NO. He says he is staying with his original prediction of a plus double digit increase including dividends. Here are Donald Pearson’s comments from the firms’ newsletter, Pearson Investment Letter, www.pearsoncapitalinc.com.

“I thought then, and I believe now, that the second half of the year will be better than the first for many reasons.

First, the gross domestic product that has continuously hovered at or barely above 2 percent for the past eight years will probably finish this year well over 3 percent. Already we have seen the last reporting quarter above 4 percent, and this should continue into next year. We have not seen this type of growth for 18 years.

Second, our unemployment rate is the lowest it has ever been, and it continues to go lower. We have not seen these types of impressive numbers since the 1950s. New jobs hover around 160,000 per month and should continue right into 2019.

Third, the federal government has increased their discretionary spending by over $300 billion over the next two years.

Fourth is the massive income tax cut of $1.5 trillion over the next ten years. This started earlier this year, and many did not see the benefit in their paychecks immediately. The real impact began in some cases several months later. It is working today and many are now spending more. With these tax cuts many companies returned a significant amount to employees and others bought their own stock back, while others were increasing or paying out special dividends. However spent, the companies in the S&P for the first quarter of 2018 had earnings that were more than 20 percent higher than last year. This is the strongest gain in seven years and continues to look favorable for next year.

With the stock market there is never a direct climb without occasional pullbacks and corrections. If you have the right portfolio balanced and diversified, I would see this, if a pullback occurs, as a buying opportunity rather than the time to jump ship and begin selling. Note the 2007-2009 pullback when many lost around 40 percent. In two years most had all of that back and then continued to climb consistently. Now eight years later the market has provided us with an opportunity to prosper. I believe this year will produce double digit growth, and again in 2019 another favorable opportunity. I’m very concerned regarding 2020 and would like to do extensive homework as we get closer before making my prediction as to results.”

Source: The Pearson Investment Letter, is a publication of Pearson Capital, Inc., available to clients with managed accounts. For money management services, visit www.pearsoncapitalinc.com.

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