Small Stocks Soar and
the Birth Rate Plummets
By: Kevin Dombrowski
Past performance is not an indication, predication or guarantee of future results.
Weekly Update
After last week, where stocks recorded solid gains and pushed all the major benchmarks into positive territory for the year, this week was relatively flat with a bit of volatility. Many experts believe that last week’s surge brought much of the stock market in line with fair value estimates. 

By the end of the week, overall earnings for the S&P 500 grew by nearly 25% from one year ago, with nearly four out of five beating Wall Street’s estimates. 
Inflation numbers in April were tame . With the exception of an increase in gasoline prices, inflation numbers were in line with long term averages. 

Investors appear unconcerned with bond yields as they continue to increase with inflation. In fact, the 10-year Treasury note yield reached a seven year high at 3.1%. As bond yields increase, many bond prices will decrease. Additionally, stocks may continue to be increasingly volatile as we have seen so far in 2018.

Small Stocks Soar
Small stocks, represented by the Russell 2000 index, soared in April and May, beating large cap stocks, represented by the S&P 500 index, by nearly 2.5%.  In fact, the Russell 2000 reached its highest level ever on Wednesday. This is partially attributed to smaller companies receiving a larger boost from the recent corporate tax cuts, as they tend to pay higher effective tax rates on average. 

Relative to global economies, many investors are currently looking to amplify their returns through US small companies, which many believe presently have better upside with less risk. Additionally, with trade winds in Europe and Asia, small US companies receive a smaller share of their revenue from outside of the US. With global trade risks, small stocks tend to be less affected.
Source: https://www.wsj.com/articles/small-caps-set-new-highs-outpacing-their-multinational-peers-1526503338
L astly, US small business owners’ confidence is also near all-time highs. This optimism is lifted by increases in consumer spending, lower taxes, and strong earnings.

US Births Hit Lowest Rate on Record
Federal figures released Thursday showed that US births reached the lowest rate on record last year . 3.85 million babies were born last year, down 2% from 2016, and the lowest number since 1987. The fertility rate for women age 15 to 44 was 60.2 births per 1,000 women – the lowest rate since this information has been tracked (over 100 years ago). 

What is causing this? First, people are living longer, causing the population to consistently age. Second, families are having fewer kids – a trend that began in the mid-1980s and continues today . Third, the recent recession and skyrocketing educational costs have deterred families on the fence from having kids or trying for another child. 

This trend is concerning some as many baby boomers are at or near retirement, leaving a smaller share of young workers to pay into Social Security and Medicare.
610-896-2058
kdombrowski@mainlineco.com
MainLine Private Wealth 308 E Lancaster Avenue Suite 300 Wynnewood PA 19096