Market Update 6.30.2019
The U.S. stock market was up 4.20% for the second quarter of 2019 and up a whopping 18.88% for the first half of the year. The volatility that returned to the market in recent months continued in the second quarter.
The market rose and fell with the ebbs and flows of the trade deal between the U.S. and China. The news was very positive and appeared China was making the necessary concessions to come to an acceptable deal, but in April China backed out of the process. It appears the hard liners in China are fine with trade talks but not in making any substantial changes. Talks are back on and a meeting between President Trump and President Xi Jinping appears in the offing. A trade deal would boost the market, although the boost would be short lived, as the market has baked in most of the positives of a trade deal.
The U.S. economy’s growth accelerated in the second quarter. The latest estimate for first quarter 2019 GDP is 3.1%. The employment situation slowed in May, but picked up again in June. The unemployment rate is holding steady at 3.6%. The calls for a recession have calmed because there is no evidence we are headed for one.
The Fed is taking its “dovish” stance to new levels, as the market is now expecting the Fed to lower rates as soon as the next Federal Reserve Board meeting this month and possibly twice this year, which has boosted the stock market. But Chairman Powell has reiterated several times that any changes in rates will be data dependent. Based on the number of jobs added last month, the data does not appear to support a cut in interest rates at this time, at least not two cuts.
Corporate earnings came in better than expected in the first quarter, but they were still only slightly better than flat. Earnings growth is expected to be flat or lower in the second quarter, which will certainly add to market volatility.
With respect to economic growth and earnings, the U.S. economy historically slows in the summer months, so it is normal for GDP to dip, which in turn causes earnings to dip.
Global economic growth is slowing, but what is new? The uncertainty over Brexit is slowing things in Europe. Growth in China has slowed but is holding up due to the actions taken by the government. More action may be needed if the trade spat with the U.S. continues much longer.
Expect the market volatility to continue. If you are uncomfortable with the volatility please contact me and we can discuss and adjust. I expect the stock market to continue to perform well, but investors need to keep in mind the market is up 18% year to date. That is outstanding. It would be remarkable to see the performance for the second half of the year match the first half.