Market Commentary: Q2 2019 in Perspective


Our evidence-based investment approach focuses on investing for the long-term. Portfolio allocations and investments are not adjusted in response to market news or economic events; however, we evaluate and report on market and economic conditions to provide our investors with perspective and to put portfolio performance in proper context.

The global stock market rally that began in the first quarter continued in the second quarter. All major stock and bond categories we track posted gains over the past three months. While we never know for sure what caused the recovery to continue, reduced fears of a slowing economy, progress on U.S. trade negotiations and accommodative

For the quarter, U.S. stocks (as measured by the S&P 500 Index) gained 4.3%, and non-U.S. developed market stocks (as measured by the MSCI World Ex U.S.) gained 3.8%. Emerging market stocks (as measured by the MSCI Emerging Markets Index) gained 0.6%.

U.S. interest rates fell during the quarter as the Federal Reserve indicated that the next move for short-term interest rates may be lower. Updated interest rate forecasts from the June 2019 Federal Open Market Committee meeting showed a growing preference among Fed officials to lower interest rates from their current range of 2.25 – 2.50%. Since changes in interest rates and bond prices are inversely related, the decline in interest rates helped increase the quarterly return for bond asset classes.

The U.S. Dollar Index, a measure of the value of the United States dollar relative to a basket of foreign currencies, slightly declined in the second quarter — with the U.S. dollar declining by -1.2% compared to foreign currencies. Over the past 12 months, the U.S. dollar  appreciated 1.1%.

U.S. Economic Review

Positive economic growth in the U.S. continued in 2019. The final reading for first-quarter GDP showed an increase in economic growth of 3.1%. The June 2019 reading of the unemployment rate remained near a four-decade low at 3.7%. Domestic inflation remains tame as the Fed’s preferred gauge of overall inflation, the core Personal Consumption Expenditures (PCE) index, stayed below the Fed’s target of 2.0% with a reading of 1.6% in May 2019.

Financial Markets Review

The stock market recovery that began in the first quarter continued in the second quarter. While there were some up and down price movements during the quarter, all the asset classes we track ended the quarter with a gain. During the quarter, U.S. large-cap stocks performed the best, followed closely by U.S. value stocks. After a strong first quarter, U.S. real estate investment trust (REIT) stocks posted the smallest gain. U.S. short-term bonds and global bonds both advanced 1.5%. 

In the U.S., large-cap stocks outperformed small-cap stocks in all style categories. Growth stocks outperformed value stocks in all size categories. Among the nine style boxes, mid-cap growth stocks performed the best, and the smallest gain occurred in small value stocks.

In developed international markets, the results 
were similar to the United States. Large-cap stocks outperformed small-cap stocks, and growth stocks outperformed value stocks. Among the nine style boxes, large-cap growth stocks gained the most, and mid-cap value stocks gained the least.