Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Second Quarter of 2019. The excerpt is posted here for the benefit of our blog subscribers.
Stocks Rise as Economic Slowing Brings Lower Interest Rates
Bad economic news was good news for stocks in the second quarter, as signs of economic slowing led to lower long-term interest rates and also upped the odds of rate cuts from the Fed, buoying markets.
US large cap stocks, as measured by the S&P 500 stock index, climbed higher on the quarter, rising 4.3% as investors cheered dovish comments by the Fed, while also shrugging off trade tensions with China and conflict with Iran. Year-to-date, US stock gains now stand at a remarkable 18.5%.
The rally was relatively broad based, with all sectors (except energy) rising. Financial stocks (up 8.0%) and the materials sector (up 6.3%) posted the biggest gains for the quarter. Technology stocks remain the best performers on the year (up 27.1%).
International developed stocks mirrored the US market, as investors cheered the prospect of new accommodative monetary policies. The MSCI EAFE index climbed 4.0% on the period. Year-to-date, international developed stocks (up 14.5%) have performed strongly, though lagged behind US stocks (up 18.5%) as Eurozone economic concerns and Brexit uncertainties linger.
Emerging markets stocks suffered amid ongoing trade tensions between the US and China. The MSCI Emerging Markets index rose a modest 0.7% on the quarter, putting year-to-date returns at 10.8%, trailing developed market stock indexes.
Market volatility rose modestly on the quarter, with the VIX volatility index rising from about 13 at the beginning of April to 15 by the end of June. The index briefly got as high as 20 (roughly its long-term average) in mid-May amid escalating trade tensions and some sharp market declines, but the spike proved short-lived.
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