Sliding Into Third with Positive Market Momentum

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Market Commentary | Q2 2019

The Summer Solstice delivered a lot of Minnesota sunshine along with positive market momentum. We ended the second quarter with positive Stock and Bond markets for the first half of the year, and with Stock markets reaching new record highs. In fact, this was the seventh best June in history and the best since 1926. In addition, this was the seventh straight year with positive market returns in the first half of the year. These positive results may be a surprise to anybody who watches the news, listens to the radio, or reads the news (paper or electronic versions) as the market gains have been lost in the shuffle of other pressing stories. Most of the major market concerns are still about geopolitical events including a potential Trade War with China, conflict, and turmoil in the Middle East, ongoing Brexit floundering, concerns about where the Federal Reserve will choose to drive the US economy, and early palpitations about the US Presidential election in 2020. For perspective, as of June 30th, the S&P 500 Index (US Large Cap Stocks) is up 18.5%, the Russell 2000 Index (US Small Cap Stocks) is up 17.0%, and the MSCI All-Country ex-US Index (International Stocks) is up 13.6% despite the multitude of concerning headlines.

What is driving markets forward against the geopolitical headwinds? The global economy recently entered a period of slowing growth due largely to concerns and issues related to trade with the US (Brexit doesn’t help either). China is the 2nd largest economy in the world and a more active trading partner in many markets than the US. Many US companies have been the primary losers from the tariffs put in place so far, plus US consumers who have received a relatively small hit from the Trade War rumblings (so far). The markets are currently pricing in a “best case scenario” where the US and China sign a reasonably fair trade agreement, trading with peripheral countries resumes, and Middle East tensions stay on a simmer rather than a boil. The fragile foundations of this optimistic scenario were demonstrated in May when markets tumbled for a couple weeks amidst concerns that the US was going to start a third-front Trade War with Mexico. We expect to see continued market volatility throughout the rest of 2019 amidst generally rising global markets. It will also be an opportunity for International Stocks to demonstrate stronger performance as the US Dollar weakens with lower interest rates and a (potentially) more stable trading environment. In the meantime, we will continue to ensure broad portfolio diversification and capitalize on portfolio rebalancing opportunities as markets shift. Best wishes for an enjoyable Summer with eyes on family, friends, and nature instead of the news headlines of the day!

For more information on investments and the markets this quarter you can look at our Quarterly Market Review.

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