Fidelity Bank - Wealth Management
June 2019 Market Review
William J. Fennie III
Wrapping up the first half of the year, equity and fixed income markets rallied globally in June. Equities were pushed higher as the US and China agreed to a temporary truce in the trade war, with the expectation of settling the dispute in the near future. US equities rose 7.05% in June. Despite sharp losses in May, US equities closed the best first half of the year since 1997, rising 18.54%.
In the face of slowing economic data, bond market participants priced in the Federal Reserve to cut rates by 50 basis points by the end of 2019. This expectation drove bond yields lower and bond prices higher. The Bloomberg Barclay Aggregate bond index rose 1.29% in June. Year-to-date US Bonds are up 5.98%.
In a change of pace, Value stocks outperformed Growth stocks for the first time this year in June. Value stocks returned 7.18% while Growth Stocks earned 6.87%. Year-to-date, however, Growth stocks maintain a comfortable lead over Value stocks (21.49% vs. 16.24%).
In contrast to May where 10 of 11 Global Industry Classification Standard (GICS) sectors were negative, all GICS sectors were positive in June. Materials and Energy sectors led the way up 11.71% and 9.27%, respectively. Real Estate, which was the lone positive sector in May, was the laggard sector, only rising 1.76% in June.
Dollar strength added to returns for US investors in both Developed Markets and Emerging Markets. The Dollar Index, which measures the US Dollar vs Developed Market currencies, weakened by about 1.66% in June. The MSCI EAFE index gained 4.27% in local currency terms, and 5.93% in US Dollar terms. The MSCI Emerging Market Currency Index strengthened by about 2.00% vs. the US Dollar in June. The MSCI Emerging Markets index returned 4.61% in local currency, but the conversion to US Dollars increased that gain to 6.24%. Shortly after the temporary trade war truce with China, renewed talk of tariffs on European countries was announced.
In June, the bond market all but priced in a rate cut by the Federal Reserve before the end of the year. Rates across all maturities fell, with 3-month to 1-year maturities falling the most. The benchmark 10-year rate sunk to 2.00% to end of June. The 3-month to 10-year spread narrowed from the end of May but still ended the month inverted with the 3-month rate 8.71 basis points higher than the 10-year note.
Source: Bloomberg, Fidelity Bank
Unlike May’s flight to safety in which US High Yield Bonds sold off by 1.19%, High Yield Bonds rallied 2.28% in June as the spread narrowed with investors expecting a rate cut by the Federal Reserve. High Yield spread to 10 Year Treasury bonds decreased 58 basis points from 4.45% at the beginning of the month to 3.86% by month end. High Yield bonds yielded about 5.84% at the end of June.
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 32.7 basis points. With dollar weakness, Emerging Markets Debt was the best performing fixed income asset class in June, rising 5.44%. Year-to-date Emerging Markets Debt is up 8.88% and currently yields about 6.15%
The Bloomberg Commodity Index gained 2.69% in June. Escalating tensions with Iran and a Philadelphia refinery explosion helped Oil rebound after its sharp decline in May. Oil gained nearly 9.5% in June. Gasoline prices jumped 7% in June as the summer driving season kicked into high gear. Dovish language by the Federal Reserve drove an expectation of looser monetary policy. This expectation drove gold and silver higher in June by nearly 8% and nearly 5%, respectively.
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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.