On Air with Altair: 2Q 2019 Market Review Video
Want to hear Altair’s analysis of the markets, but do not have the time to read all of Altair Insight? Watch our video summary of the report and you will be caught up on our market review in 3 minutes.
Strong First Half
Both stocks and bonds generated solid returns during the first six months of the year, led by gains in the high-teens for U.S. stocks and mid-single digits for taxable and tax-exempt bonds. Even with the outsized return for large caps, the S&P 500 has kept to a modest pace over the past 18 months, with an average annual gain of 9 percent.
Foreign stocks performed nicely as well but did not benefit from having the U.S. tech stocks that disproportionately boosted domestic market performance.
The strong first half came as the U.S. economic expansion passed the 10-year mark, exceeding the length of the tech-fueled run that dominated the 1990s.
Sound U.S. Economy
Speaking of the expansion, our commentary focuses at length on the U.S. economy and concludes that while it is slowing, it remains healthy.
Recent declines in manufacturing and business spending are certainly areas of concern. Yet most other key economic indicators are positive. And we currently do not see any major stresses that point to a near-term recession.
We believe a still solid U.S. economy should continue to support stocks for the second half of the year.
Our commentary also discusses the latest developments in the U.S.-China trade war.
The slowly expanding impact on trade volumes and other areas has heightened uncertainty and made the tariffs fight more of a wild card for markets than ever.
Direct consequences on the economy thus far have been contained. However, an eventual trade agreement is needed to sustain the current market cycle and avoid broad damage to the world economy.
We believe the strong incentives for both Presidents Trump and Xi to avoid a breakdown will result in a trade deal before next year’s U.S. presidential election.
Fed to the Rescue
Another important topic this quarter is the Federal Reserve signaling it will lower interest rates.
We view the multiple rate cuts that Fed officials have projected as justified in the face of subdued inflation, slowing global growth, and a recently inverted yield curve.
After nine rate hikes over the past three years, the Fed’s turnaround should be good news for investors.
While rate cuts are no guarantee the economy or markets will strengthen, we see similarities to 1995 and ’98, when the Fed shifted from raising rates to lowering them; followed by a rise in stocks.
We think markets should benefit this time too unless trade-war negotiations collapse for an extended period.
Overall, we remain optimistic about equity markets for at least the second half of 2019. Central banks have pledged easier financial conditions and the U.S. economy continues to be a linchpin of the global economy.
Past performance is not indicative of future performance, and all investments are subject to the risk of loss. This material is for informational purposes only and should not be construed as an offer to sell or buy any security. Material contained in this communication should not be construed as accounting, legal, or tax advice. We encourage you to contact us with questions regarding the material shown.