Building on the first quarter’s momentum, the capital markets continued their upward trend during the second quarter. Despite a pullback in May due to global trade concerns, falling oil prices, and subsequent global growth concerns, the capital markets quickly recovered and are showing positive returns on a year-to-date basis. So far this year, both equity and bond markets are moving together on an upward trend.
US Economy and Markets
Investors have been keeping a watchful eye on US economic growth and the actions of the Federal Reserve. Domestic economic data continues to give mixed signals, with some areas showing strength and others showing signs of slowing. Employment data and wage growth remain positive. The consumer also remains strong with healthy balance sheets and elevated savings rates. Inflation has remained persistently low. Conversely, US manufacturing data suggests new orders are slowing, and global trade concerns continue to weigh on the prospects for future growth.
The Federal Reserve left interest rates unchanged at both of their meetings in the second quarter. Their commentary after the June meeting was viewed as “dovish”, indicating they are poised to support the US economy with future interest rate cuts if growth slows. Although only a minority of Fed officials believe a rate cut will be necessary in 2019, the market is anticipating a rate cut may come as early as late summer or fall. While investors wait to see what course of action the Federal Reserve will take, their stance is fueling gains in the capital markets.
Non-US Economies and Markets
From a global perspective, economic growth remains positive, albeit at a slower pace. Like the US, global central banks are poised to provide further monetary stimulus to spur growth if needed. However, inflation around the globe remains stubbornly low, posing somewhat of a challenge for economic policy makers.
Outside of economic data, several global headlines continue to pose risks to the capital markets. US-China trade talks continued throughout the quarter. After negotiations broke down in May, Trump and Xi exchanged tit-for-tat tariffs, which spurred market volatility. Also, Brexit continues to loom in the future, with the EU extending the deadline for Great Britain’s departure to October. Theresa May resigned as Great Britain’s Prime Minister after her Brexit plan did not gain Parliament’s approval after multiple votes. This leaves the path to Brexit unknown as Great Britain chooses a new Prime Minister to deal with the situation.
What Does This Mean for You?
The markets have shown resiliency this year, partly driven by supportive statements from central banks in the face of potentially slowing economic growth. However, risks remain on the table such as lofty market valuations, global trade concerns, and geopolitical developments. As always, we encourage a long-term perspective, prudent asset allocation, and appropriate diversification.
With one half of the year behind us, it may be a good time to review your financial picture and ensure you are positioned appropriately. Have your financial goals changed? Has your risk tolerance or time horizon changed? Do you have adequate cash reserves for future spending needs? If you have questions about your portfolio or would like to meet and review your financial picture, please call our office for an appointment.
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