Market Update - June 21, 2019Submitted by Jodi Vleck , Beta Wealth Group on June 24th, 2019
U.S. stocks fared especially well last week, as news was generally positive all around. ECB president Draghi hinted toward rate cuts if economic growth and/or inflation continue to worsen on the continent in addition to the President’s reports of a very productive telephone conversation with the Chinese President prior to the upcoming and highly-anticipated G20 meeting at the end of this coming week. Then, once the FOMC’s dovish message was released, alluding to rate cuts in coming months, equities rallied.
By sector, energy experienced the strongest gains, over 5%, on the back of higher oil prices resulting from the confrontation with Iran, followed by technology and health care. However, every sector ended in the positive, with materials and defensive staples lagging the pack with minimal gains.
Foreign stocks performed as well as, or better than, U.S. equities, with help from a weaker U.S. dollar. Emerging market stocks led the pack, as bullish comments about the upcoming G20 summit raised hopes for a U.S.-China trade resolution, followed by Europe. The ECB continued to hint at far easier policy to boost inflation and economic growth, possibly through additional purchases of corporate debt, in conjunction with reports of continued weak manufacturing and business sentiment data. The Bank of England left the overnight rate unchanged at 0.75%, interestingly, due to some calls for a rate hike—not necessarily for the reason of economic strength but to sustain the value of the pound. The Bank of Japan also kept policy unchanged, in a continued stimulative level, although export data showed new weakness.
U.S. bonds gained ground, symbolized by the 10-year treasury falling below 2% for the first time in three years, as yields continued to fall to new multi-year lows in conjunction with the Fed’s dovish tone. Investment-grade and high yield corporates both saw the sharpest gains, upwards of a percent, outperforming treasuries. Foreign bonds gained on net as well, thanks to a strongly weaker dollar, with developed and emerging market bonds ending with similar results on the week. More all-time low yield records were broken last week, with the 10-year in Germany reaching below -0.30% and France at 0%.
Commodities earned a positive return in the low single-digits on the week, led by strength in energy and precious metals. The price of crude oil jumped by 9% during the week to over $57/barrel. The shooting down of a U.S. surveillance drone by Iranian forces represented the key driver of prices higher, as the possibilities of a U.S. response and heightened conflict rose relative to the verbal rhetoric of prior weeks. Gold rose as fears of a recession remained strong, and the lower interest rates acted to trim real yields—as treasuries remain a prime competitor for assets when perceived macro risk rises.