Market Minute - July 17, 2018

by Scott Rosenquist, CFA

2018 FIRST HALF RECAP

The first half of 2018 is behind us and it already has been a busy year in the financial markets both domestically and internationally. 

The broad US indices posted positive returns for the year while international equity markets have not found their footing.  The fixed income market remains pressured as the Federal Reserve continues its gradual rate hikes this year.  The common theme across the financial markets this far has been the return of volatility. 

In the US, growth-oriented sectors continue to lead with technology contributing a big part of the returns.  Value oriented sectors such as financials and consumer staples have lagged the broad market through the first half of the year. Small cap stocks outperformed notably in the 2nd quarter as they are more focused on the US economy and have dodged some of the trade tensions in the market.

Turning to international markets, we’ve seen last years outperformance reverse as trade tensions, slower growth and currencies have become headwinds.  Emerging market equities fell sharply in the second quarter on these concerns.  Valuations are attractive from a relative standpoint in both developed international and emerging markets but must be weighed with the potential risks.

The broad US bond market posted negative returns for the first half, while the high yield and floating rate sectors managed positive returns due to their lower interest rate risk and more attractive yields.  The yield curve continued to flatten in the first half with the spread between the two and ten year treasury at its lowest level in almost a decade.  Assuming the Federal Reserve continues its gradual path of interest rate hikes, the yield curve could potentially invert at some point.  That may be worth spending a minute on in the future.

Looking to the second half, trade appears to be the main topic on investors’ minds as tariffs are now going into effect.  Our upcoming Market Memo will touch on this subject in further detail.  Earnings will come into the spotlight as the third quarter begins, and expectations are that it will be another quarter of solid growth.  That should give equity markets some level of support along with steady economic data from the U.S. in terms of GDP and employment.  We continue our preference for equities at this point but are cautious as risks could grow from trade tensions and continued monetary tightening. 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Although general strategies are revealed, this post is not intended nor does it reflect transactions within any one account. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All data and information is gathered from accurate sources but is not warranted to be correct, complete or accurate. Investments carry risk of loss including loss of principal.  Past performance is never a guarantee of future results.

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