July 2019 Market Insights

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    Linda S. Parenti, CFA
    Chief Investment Strategist

    Both equity and bond markets in the U.S. delivered an outstanding start for the first half of the year. June 30 also marked the tenth anniversary of what is now the longest economic expansion in U.S. history. This has also been one of slowest, which is likely a main reason it has lasted so long. The excesses which caused the last recession are still not present. Further, all 18 of the major U.S. banks passed the Federal Reserve’s annual stress test in June, demonstrating they could continue to lend money even under a “worst-case” economic scenario. Our economy remains in decent shape with strong employment and consumer spending; however, momentum is slowing.

    Our government plays an important role in maintaining the economic health of our country. The primary tools used to accomplish this are monetary policy (adjusting the cost of money = interest rates) and fiscal policy (adjusting taxes and spending). Trade policy also has an important influence on our economy. The stimulus from the tax cuts is still present, but now lacks the initial boost to earnings. Trade uncertainty is currently weighing on business sentiment and thus, capital spending. This leaves the Federal Reserve to lend assistance with monetary policy.

    In his Capitol Hill testimonies this week, Fed Chair Jerome Powell pointed to muted inflation expectations, slowing global growth, and the increased uncertainty caused by trade tensions as reasons the risks to economic growth are increasing. Unless there are surprising improvements in the outlook on trade or inflation expectations in coming weeks, it would seem probable the Federal Open Market Committee will indeed announce a rate cut at the end of this month. With interest rates already low, a rate cut may not result in much stimulus to growth. Still, a move towards more accommodative monetary policy may contribute a degree of support until progress with trade negotiations is more apparent.

    In the meantime, stock indices continue to record new highs. However, experienced investors know that unexpected pullbacks can occur. Across all market cycles, periodic rebalancing between equities and fixed income allows us to maintain the long-term asset allocation which best fits each client’s risk tolerance and cash flow needs, while managing the holdings within these asset classes.

    Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.