Investment pros expect more volatility in stock market in second half of 2017 – Milwaukee Journal Sentinel

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The U.S. stock market had mostly smooth sailing in the first six months of the year, but the second half could be a little more choppy, investment professionals say.

The Standard & Poor’s 500 index posted an 8% gain from January through June, while the technology-heavy Nasdaq saw an even bigger jump of 14%.

Willie Delwiche, managing director and investment strategist for Robert W. Baird & Co. Inc. in Milwaukee, noted how the market normally reacts after a quiet first six months.

“Historically when we’ve had that lack of volatility in the first half, that leads to above-average gains in the second half, so that’s a reason to be optimistic,” Delwiche said. “The caveat is volatility tends to pick up in those time periods. Volatility will still be lower than average, but it will be more than what we saw in the first half.”

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Among the stocks of Wisconsin-based public companies, none performed better in the first half of 2017 — at least on a percentage basis — than Madison’s Exact Sciences Corp.

A share of Exact Sciences started the year priced at $13.36. By the end of June, the stock price had climbed to $35.37, an increase of almost 165%, according to the Morningstar Wisconsin Ticker, a Morningstar Inc. program that tracks the stock price performances of the state’s public firms.

Although Exact Sciences, which sells Cologuard, a non-invasive screening tool for colorectal cancer, lost $39.4 million in the first quarter (it hasn’t reported second quarter results yet) the loss was smaller than a year ago, and its revenue grew as the test was covered by more insurers.

On a single day alone, May 31, the price of Exact Sciences shot up almost 12% after United Healthcare — one of the nation’s largest health insurers — said it would cover Cologuard tests.

Cologuard detects the presence in stool samples of red blood cells and DNA mutations that might indicate the presence of colon cancer or its precursors.

“The stock has been absolutely sensational,” said John F. Collopy, who closely watches Wisconsin stocks as director of research for the Oshkosh brokerage firm Carl M. Hennig Inc. 

Collopy said Kevin Conroy, chief executive of Exact Sciences, has been masterful at raising capital for the company from investors as it has developed.

“It’s amazing to look at what he’s done,” Collopy said.

Exact Sciences is off to a good start in the second half of 2017 as well. Shares were trading at nearly $40 on Friday.

Collopy is among investment pros who see the stock market facing rougher waters in the July-through-December stretch. If interest rates move higher, that will create some investment competition for stocks, he said.

He also mentioned the potential for a correction in stock prices.

“The market, of course, just from a time standpoint, is due for something that’s more than just a garden variety correction,” Collopy said. “But every time it tends to wilt and it looks like trouble is brewing, it gets back on its feet and everything is fine and it just keeps marching up.”

Some money managers think it wouldn’t be a bad idea for investors to sell some shares after such gains, but in an environment like this, it’s not always easy to persuade them to lighten up on stocks.

Collopy said he thinks there will be “a lot of push and pull” in the market in the second half of 2017.

“That doesn’t mean it’s going to be a disaster. It’s just going to be more difficult to make money,” he said.

Brian Kilb, executive vice president at Landaas & Co. in Milwaukee, said he also wouldn’t be surprised if volatility increases in the second half of the year. With corporate earnings up and interest rates remaining historically low even if they do climb a bit, he’s not down on the market. But it might be a good time for people who are overexposed to stocks to reduce some risk, he said.

“Maybe you take some of those profits, because if you compare the potential for making more money with the potential for it to get rocky from time to time, I don’t know whether it’s worth taking maybe the extra risk you’ve taken the past couple of years,” Kilb said.

Delwiche said the market has gone a long time without even a 5% correction, so a “pullback of some magnitude” may be coming. But that could serve to reset the market a bit and turn out to be a bullish development, he said.

“I think we get the pullback that we’re overdue for, and maybe the third quarter is rough,” Delwiche said. “But that sets us up pretty well going into the fourth quarter, and then we start thinking about 2018 and mid-term elections and things like that.”

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