Market Insights July 2019
Financial markets continued their recovery through mid-year 2019, as the Dow Jones Industrial Average ended the quarter with the best June since 1938, and the S&P 500 its best June since 1955. It has proven a banner year for balanced global investors, with most of our clients experiencing solid double-digit returns for the first half of the year.
The S&P 500 was up over 18% through the end of April, before declining 6.35% in May and rallying 7.05% in June, ending the quarter with a gain of 4.3%. Strength was broad based; all eleven sectors were positive in June versus only one in May, and eight in April. Overseas developed markets, measured by the EAFE index, gained 14%, while emerging market equities added 10.5%, and emerging market bonds rose more than 11%. Fixed income investments benefited from interest rates declines; US high yield bonds returned over 10% and the Barclay’s bond aggregate of higher quality bonds gained 6.1%.
The U.S. economy grew at a robust 3.1% in the first quarter of 2019, but concerns remain that second quarter numbers will point to a slowdown, partially a result of trade tensions with China as well as other global concerns. The current consensus is that GDP growth will come in closer to 2%, with similarly modest gains for the balance of 2019.
Our return expectations for the balance of the year now will depend on both developing Federal Reserve policy, as well as earnings results. Second quarter earnings reports will begin the week of July 15th, and investors will be watching closely for signs that weakening results could lead the Fed to cut interest rates by the end of the month, reversing the tightening that was in process as recently as the beginning of the year. Futures are currently pricing in 100% chance of a ¼% rate cut on July 31st and a 90% chance of two ¼% rate cuts by the Fed meeting on December 11th. These cuts could provide a tailwind to global equity markets as Fed policy moves closer to other central banks around the world, which are in easing mode
While recession worries continue, the banking sector, whose vulnerability precipitated the descent into near catastrophe a decade ago, has become more resilient and stable. Most recently, the 18 largest U.S. banks passed the Fed’s stress test of maintaining liquidity in a worst-case scenario where U.S. stock markets experienced declines of 50%, unemployment rose to 10% and home values fell by 25%.
We would like to invite you to our workshop, “Investment and Financial Planning for the Surviving Spouse” to be held at Pinckney Hall in Sun City Hilton Head. on July 30th,2019 from 9:00am-11:00am. We will be serving breakfast at 8:45. This presentation includes our Red Folder system of financial data organization as well as the “Five Wishes” healthcare power of attorney and instructions to caregivers. For any of our readers outside of Bluffton, we will be glad to send out the class materials to you.
Steven I. Weber
Registered Investment Advisor
Eugene Balerna, CIMA ®
Director, Investment Research