Fidelity Bank - Wealth Management
July 2019 Market Review
William J. Fennie III
Kicking off the second half of the year, US Equities continued their march higher as earnings season got underway. Most S&P 500 companies have generally beat their 2Q 2019 targets; however, many companies are revising down their 3Q and 4Q earnings estimate. US Equities rose 1.44% in July.
In the face of slowing economic data, the Federal Reserve cut rates by 25 basis points. Market participants expect additional rate cuts by the end of the year. The Bloomberg Barclay Aggregate Bond index added 22 basis points in July. Year-to-date US Bonds are up 6.35%.
High Quality Stocks led the way in July rising 2.58% vs. 1.44% for broad US Equities. High quality stocks tend to have strong balance sheets, low debt, solid cash flows, and strong, predictable earnings. Year-to-date, High Quality Stocks are up 24.56% while the S&P 500 is up 20.24%.
Global Industry Classification Standard (GICS) sectors were a mixed bag in July. 7 of 11 GICS sectors were positive in July. Technology and Communication Services led the way up 3.33% and 3.18%, respectively. Energy and Health Care were the laggards, falling 1.72% and 1.59% in July, respectively.
Dollar strength detracted from returns for US investors in both Developed Markets and Emerging Markets. The Dollar Index, which measures the US Dollar against Developed Market currencies, strengthened by about 1.73% in July. The MSCI EAFE index gained 0.71% in local currency terms but lost 1.27% in US Dollar terms. The MSCI Emerging Market Currency Index weakened by about 0.22% vs. the US Dollar in July. The MSCI Emerging Markets index lost 0.99 % in local currency, but the conversion to US Dollars increased that loss to 1.22%. Trade war consternation continues to be the market moving headline.
The Federal Reserve cut rates in July for the first time in 10 years dropping the benchmark rate by 25 basis points from 2.50% to 2.25%. Currently, market participants are pricing in 3 rate cuts in the last 3 FOMC meetings of 2019 and a 22% chance the Fed lowers rates to 1.00 to 1.25% range by the December meeting. As of August 7th, rates have been in free fall since the end of July. With the exception of 1 Month Treasuries, rate have fallen significantly across all maturities.
High Yield Bonds rallied 0.56% in July with a rate cut by the Federal Reserve. High Yield spread to 10 Year Treasury bonds remained steady at about 3.86%. High Yield bonds yielded about 5.88% at the end of July. Investment Grade Corporates rose 0.56% in July. Year-to-date Investment Grade Corporates and High Yield Corporates are up 10.47% and 10.56%, respectively.
In international fixed income, German Bunds dove deeper into negative interest rate territory. The 10-year German Bund closed the month at record low yield of negative 45.05 basis points. Since the start of August, the Bund’s rates have continued to fall and now stand at negative 55.24 basis points. Despite dollar strength, Emerging Markets Debt was 3 the best performing fixed income asset class in July, rising 0.93%. Year-to-date Emerging Markets Debt is up 9.73% and currently yields about 6.00%
The Bloomberg Commodity Index lost .67% in July. Escalating trade tensions and economic uncertainty ushered commodities lower. Oil lost nearly 2.3% in July. Gasoline prices fell by 0.78%. Economic uncertainty and expectation of lower rates boosted precious metals in July. Gold rose 2.13%; platinum jumped 3.89%; silver rocketed 7.40%. Real estate gained 1.54% and is now up 21.11% year-to-date.
Daniel J. Santaniello, President and CEO, of Fidelity Bank, publishes Financially Fit with Fidelity, your guide to financial well-being, every Thursday. If you’re interested in a financial topic we haven’t yet covered or want to subscribe to our emails, please feel free to drop us a line at blog at fddbank dot com. We would love to hear from you.
June 2019 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data as of 6/30/2019. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large‐cap segment of the U.S. equities market.