The first half of 2019 brought investors a welcomed rebound from the selloff in Q4 2018 as all asset classes are showing positive returns YTD. The second half of 2019 is shaping up to be a battle between bullish and bearish forces. On one side we see a resilient labor market, low inflation, moderate US GDP growth, and an accommodative Fed that is concerned about hiking rates too quickly. In contrast, bearish forces such as slowing global economic growth, a flat yield curve, and trade wars rife with tariffs all threaten to derail the upward climb of portfolios in 2019.
Stay the course—we are prepared to navigate the uncertain outcomes that will unfold. As always, your JOYN advisor is here to guide and support you.
- Fixed income markets finished the quarter higher, led by emerging markets debt which benefited from central banks broadly signaling more accommodative monetary policies.
- The Fed took an increasingly dovish stance at its June meeting, raising market expectations for a rate cut in 2019. U.S. interest rates continued to move downward with the 10-year U.S. Treasury closing the quarter at 2.01 percent.
- The U.S. dollar fell against several emerging economy currencies following signaling from the FOMC of a possible rate cut. The result was a substantial rally in emerging markets debt denominated in local currencies.
- Equity markets built on their first quarter performance and continued to generate strong returns during the quarter. Domestically, growth stocks outperformed value stocks and large cap outperformed both mid and small cap stocks.
- Within U.S. equities, the financial services and consumer discretionary sectors were the top performers while energy and healthcare were the worst performing sectors.
- International developed equities posted strong returns for the quarter but still lagged domestic equities. Emerging markets increased marginally during the quarter led by Argentinian and Russian equities. China underperformed as concerns over its economic growth and trade dispute with the U.S. continue to worry investors.
- Real assets posted relatively flat returns for the quarter following their strong performance last quarter. REITs increased slightly while midstream energy (MLPs) remained relatively unchanged.
- Domestic REITs outperformed international, led by strong performance in the healthcare and residential sectors.
- First quarter real GDP increased at an annual rate of 3.1% on a quarter-over-quarter, seasonally-adjusted (QoQ, SA) basis according to the Bureau of Economic Analysis—an increase from the 2.2% growth rate realized in the fourth quarter.
- The Fed signaled its intention to leave rates unchanged in 2019 and cut rates next year. However, eight FOMC members currently favor a rate cut this year, and bond markets expect at least one rate cut this year.
- Core PCE, the Fed’s preferred measure of inflation, increased 1.6% (YoY, SA), falling short of the Fed’s 2% target.
- The U.S. and China agreed to resume trade negotiations, but uncertainty remains over the timing and scope of any potential trade deal.
- First quarter real GDP increased at a 1.6% annualized rate (QoQ, SA) in the Euro Area, but uncertainty over trade policy and reduced global demand have clouded the economic outlook.
- The European Central Bank (ECB) lowered its forecasts for real GDP growth in 2020 and 2021 to 1.4% and 1.5%, respectively. The ECB also signaled a willingness to provide additional monetary stimulus to support economic growth.