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CWG Market Commentary: 7/15/2019 Update from Crown's CIO

I’m not sure how you all are feeling, but it seems like 2019 is flying by. We have already reached the midpoint of summer and we hope all your vacations, BBQs and family celebrations are going well. While we will always encourage our clients to stay informed about the financial markets, it’s important to remember that our philosophy is to utilize goals-based investing so that our clients achieve the objectives identified in the financial planning process. As your Personal CFOs we are here to fill the gaps of time and advanced finance knowledge so that you have balance between your life and your wealth.

It has been a wild first half of the year for financial markets. But if you’re like most people, you probably didn’t know that the S&P 500 just had its best first half since 1997 or that the Dow Jones Industrial Average had its best June since 1938. Even for those of us who watch the market daily it didn’t feel like a historic run. But when the dust settled at the end of June the S&P 500 was up 17.4% (all data according to Morningstar). In this market overview we’ll take a look at what has transpired so far in 2019, the current outlook for the remainder of the year and also preview the potential impact of the fast-approaching 2020 presidential election.

Since the year began there has been no shortage of meaningful economic and political news including the trade wars, Brexit, slowing growth and guessing what the Fed will do with interest rates. But perhaps the most influential factor for 2019’s gains is that 2018 ended so badly. Coming off fresh market highs set back in October, you may recall that on Christmas Eve, the S&P 500 was on the brink of a bear market (defined as a 20% drop from recent highs). Instead, markets recovered a bit the final days of 2018 and it was a steady climb to new all-time highs in April. In May, the market pulled back as the trade war with China heated up; but again, we saw new all-time highs set in June. Even though the S&P 500 was up 17.4% after Q2 ended, it was actually only up less than 1% since the highs set back in October. This fact is probably why, to many of us, it doesn’t feel like the market has been hot. More importantly, when we look at our investment accounts, we are probably remembering the values back in October opposed to what the value was on January 1st. A quick glance at the chart below helps visualize this.

                                    Source: NASDAQ.com

Heading into the second half of 2019 we are cautiously optimistic about global economies and financial markets. The reality is that the main topics from the first half are still very much in play and could lead the markets in either direction.  

The current consensus amongst economists is that the US and global economies are clearly slowing down. Recently, several economic indicators have been weaker including US payroll and manufacturing. There are still many bright spots however, for example US consumer spending and confidence remain at solid levels. Federal Reserve Chairman Jerome Powell told congress last week that an interest rate cut is likely at the end of July in a move that indicates that the Fed is willing to take measures to combat the slowing economy. Other members of the Fed also hinted that another cut is likely before the end of 2019. With possible rate cuts on the table for the foreseeable future it is likely that traders will create volatility as economic reports are released that give indication of the probability, timing and size of the cuts. We as long-term investors shall remain focused on diversification and achieving our goals. In short, the economy continues to expand, but it might not be a smooth ride.

One factor that is contributing to the economic slowdown both at home and abroad are the trade wars being implemented by the White House. Most notably is the brinkmanship that occurred between China and the US in Q2 which is supposed to have ended when the two sides met at the G20 Summit in Japan in late June. The China front seems good now, but problems can’t be assumed to be gone for good. This is an issue we expect to cause some volatility in the second half of 2019.

Another global issue that has rattled global markets for over three years could come to a head in October. Brexit, which is the term given to the withdrawal of the United Kingdom from the European Union, has a deadline of October 31st. The EU leaders have already granted multiple extensions but leaders on the UK side have been pitted against each other with British Prime Minister Theresa May already being forced to resign. If Brexit does occur in 2019 it will be at a time when trade in the EU is already contracting. The stakes are high for all of Europe and a muddled exit could reverberate throughout the global markets.

While the Brits are in the midst of finding their next Prime Minister, things are just starting to heat up here in the US as the 2020 Presidential race has officially begun. While it’s anyone’s guess what the final outcome will be, it is a virtual lock that the state of the economy will play a big role and media coverage will be rampant. There will be many factors that could drive the markets in either direction. For now, we’ll shine a positive light and remind you that historically the best ally for an incumbent is a strong economy. President Trump knows this and could protect his position by closing out trade wars and firming up his “American First” directive. These moves could provide support to the markets and your investments. We will continue to keep you informed on the election’s impact all the way through 2020.

Nick, Tyler & myself wish you all a safe and enjoyable summer.


Steve Lindgren - Chief Investment Officer & Partner