Benjamin Lavine, CFA, CAIA
Data Source: Bloomberg
June 2019 Highlights:
- Global stocks (MSCI All-Country World Index or ACWI) recovered from the May sell-off, returning 6.5% led by the U.S. (S&P 500) and MSCI Europe (7.0% and 6.7%, respectively) while MSCI Japan lagged with a return of 3.7%.
- The S&P 500 recovered May’s -6.4% sell-off as investors bought risk-on commodity cyclicals and industrials and growth technology.
- The Euro sold off against the US dollar following a renewed commitment by the ECB to expand quantitative easing and drive rates further into negative territory but then recovered when the central bank dovish baton was passed off to the Fed following the June meeting.
- U.S. small caps had lagged large caps right up until the final days before quarter-end while Pure Value outperformed Pure Growth.
- Among risk factors, Value benefited from the late-month push into industrial cyclicals to pull ahead of other risk-factors, while Minimum Volatility lagged despite the drop in interest rates; however June performance dispersion across factors was pretty narrow.
- Despite the risk-on behavior in global equities, fixed income also performed well, largely in response to more dovish policy stances taken by the ECB and the Fed following their respective June meetings. Foreign currency bonds also benefited from a weaker U.S. dollar while High Yield benefited from spread tightening.
- The 10-Year U.S. Treasury Yield dropped to 2.00% on the dot at month-end, levels not seen since 2017. The 2-10 Year Term structure has steepened to mid-20 basis points from mid-teens, but this is due to the significant inversion of the curve at the short-to-intermediate end.
- Interest-sensitive Real Estate lagged the broader market advance while Precious Metals and Commodities benefited from the Fed’s dovish pivot as well as the rally in oil prices partly due to renewed tensions with Iran.
- Now that the U.S. and China have stepped back (again) from the brink of a full-blown trade war to re-engage in trade negotiations (again), one can make a reasonable argument that markets are now priced at an equilibrium, delicately balanced between macro tailwinds and headwinds.
- If U.S. / China trade negotiations don’t break down and businesses get a clearer macro picture on where/when to invest, then equity valuation levels can hold. Global equities could then enter a ‘put-up-or-shut-up’ period where further market advances would need to be confirmed by actual earnings growth.
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