Equity markets remained on solid footing as the first half of the year came to a close. After a strong first quarter, markets turned jittery in May, but came back solidly in June. Last month’s rebound was and continues to be driven by the hope of two events: The Federal Reserve lowering interest rates, and the U.S. and China reaching an agreement on a new trade deal.
At June’s Federal Open Market Committee (FOMC) meeting, the Fed left rates on hold, but sent a clear message that the next move would be a cut. Chairman Powell stated that the Fed remains ready to “act as appropriate to support the economic expansion”, but was otherwise noncommittal on the timing or the size of any future interest rate reductions. He further suggested that consensus is building towards a cut (which has been the case for other economies around the globe), but the move will be data dependent. After 2 1⁄2 years of steady rate increases, the likelihood of lower rates is a positive and is being welcomed by the markets.
Trade negotiations with China continue to be ongoing and recently have taken a more positive tone. Other than garnering more than its fair share of headlines, the tit-for-tat trade talks, or “war” as it is often referred to, has done very little to suppress the U.S. market which stands at or near its all- time high. At the recent G-20 summit in Osaka, negotiations resumed in a positive manner with the U.S. delaying indefinitely any additional tariffs, and China pledging to buy more agriculture products from the U.S. Though the markets are betting on a positive U.S. outcome, much more work remains to be done before this issue is put to bed.
In summary, as trade talks have taken on a more positive tone and, more importantly, as the Fed is showing a willingness to lower interest rates, the U.S. economy is on track to continue its expansion. With the latest run-up, U.S. equities are trading within a “fairly-valued” range. Balance sheets are strong, dividends are increasing, inflation remains low, and corporate profits are at all-time highs.
I am writing this on July 1st, but it likely will be after the 4th when you receive this. I hope you had a very enjoyable holiday.
Thank you, and as always, my team and I are available for you any time.
Best Regards, Clay Parker