Market Update – 2019 Second Quarter

by | Jul 8, 2019 | Market Commentary, Market Performance

U.S. Versus International

The S&P 500, an index of large U.S. companies, posted a total return of 4.3% for the Second Quarter of 2019. U.S. stocks outperformed international for the quarter as measured by the All Country World Index ex-U.S. stocks, a representation of international stocks outside the U.S. Total return for the Second Quarter of 2019 was 3.8%.

The performance gap between U.S. and international stocks was relatively muted in the second quarter, despite major headlines surrounding China/U.S. trade negotiations. Equity markets fell hard in May, surrounding tougher talks out of Washington related to potential trade tariffs against Chinese-made goods. Markets bottomed on June 3rd as these trade talks eased and the Federal Reserve softened its stance on interest rates, leaving open the possibility of a rate decrease. These events led to the strongest return for the month of June since 1938 in the Dow Jones Industrial Average Index.

European stocks performed very well in the second quarter, with the German DAX Index up 7.6%. German industrial output and exports fell sharply in April due to trade disputes between the United States and both China and the European Union. As these disputes eased in the second quarter, stocks took a positive turn. Thomson Reuters also reported an improvement in the services sector that has been helping the German economy.   

 

U.S. Sectors

Top performing U.S. sectors as reported by J.P. Morgan for the second quarter of 2019 by total return included Financial Services (8.4%), Basic Materials (5.9%) and Consumer Cyclical (5.9%). Laggards for the second quarter include Energy (-3.8%), Healthcare (1.3%) and Real Estate (1.7%). Federal Reserve indications of a more dovish stance on interest rates helped drive Financial Services performance in the second quarter.

Growth stocks remained strong in the second quarter as a whole as investors continue to seek companies with solid revenue growth opportunities regardless of valuation. There was quite a lot of volatility with sector leadership bouncing between cyclical versus defensive sectors, depending on the headlines for U.S./China trade talks and Federal Reserve policy. Energy stocks gave back much of their strong performance from the first quarter as oil prices remained volatile.

Investors remain cautious regarding economic and earnings growth going forward. S&P 500 earnings dropped from the third quarter 2019 to the fourth quarter. First quarter earnings have yet to be finalized; however, estimates from FactSet and S&P indices indicate they will not top third quarter numbers. In fact, the third quarter of 2018 may represent a high for earnings for the rest of the year, with second quarter earnings marking the first year-over-year decline since 2016.