Global financial markets continued to rally through the second quarter, closing near an all-time high on the major market indices. Buoyed by expectations of accommodative Fed policy, the markets shrugged off ongoing concerns around the China trade war as well as geopolitical concerns, particularly in regards to deteriorating relations with Iran.
The latest “truce” with China comes with very few signs of a longer-term pact, contributing to the uncertainty as to how the world’s economic superpowers will resolve their differences. Greenwood Gearhart will be closely monitoring this quarter’s corporate earnings releases, as the first measured signs of deterioration may manifest themselves in these results.
As we enter the third quarter, the focus is on the Federal Reserve and their next interest rate decision. Many market participants are expecting a rate cut this year with some even anticipating such a move at the late-July meeting. At the last meeting of the Fed a sole dissenter – St. Louis Fed President James Bullard – cited continued low inflation while arguing for an “insurance” rate cut as a hedge against potential deterioration in the economy. The Fed’s management and communication of this decision will be very closely watched, as it would represent the first “loosening” of economic policy since the aftermath of the 2008-2009 crisis. The equity markets seem to be counting on a rate cut, providing support for current equity levels. However, continued positive economic news may lower the probability of such a cut and, ironically, provide for volatility as we move through the summer months.
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Download a pdf of the Quarter 2 2019 Market Commentary through the link below.