Despite increasing trade tensions, geopolitical turmoil, and downward revisions to global growth forecasts, nearly all asset classes posted positive returns in the second quarter. The S&P 500 was up 4.3%, International Developed markets1 were up 3.7%, and even the Emerging Market index2 was up 0.6%, despite negative performance in China lowering returns for the asset class. Bonds3 were up 3.1% during the quarter as interest rates moved down.
Sell in May
The quarter was not without volatility, however. Equity markets swooned in May, as America’s trade war with China escalated, and the Fed seemed to be downplaying its impact. At the same time, tensions between the US and Iran were mounting, increasing the uncertainty. Manufacturing data throughout the quarter suggested a continued slowdown in the sector.
Back to Work
Employment continues to be a bright spot, with unemployment levels hovering near historical lows at 3.7% of the civilian labor force. Wage growth also picked up over the quarter, which should put further pressure on unemployment in the future. The economy continued to add strong job gains throughout the quarter providing more support for the expansion.
The Usual Suspects
At the end of the day, Central Banks were the catalyst for the bounce back from the lows the equity markets hit in May. Mario Draghi, the head of the European Central Bank (ECB), announced continued easy monetary policy and increased measures to help support the recovery in European economies. The Federal Reserve signaled interest rate cuts may come sooner than they had previously expected which brought rhetoric more in line with market expectations.
Markets have had an incredibly strong year with less volatility than is typical. We expect volatility to pick up as we move into the second half of the year to a more “normal” range. It’s a good time to review your time horizon and allocation to risk and make sure you are on track to meet your long-term goals. Give us a call if you would like to discuss how we manage these risks in our portfolios and help you make better decisions with your money.
1 International developed markets are represented by the MSCI EAFE index.
2 Emerging markets are represented by the MSCI Emerging Markets index.
3 Bonds are represented by the Bloomberg Barclays U.S. Aggregate index.