US Economy: Things aren’t that bad.
US GDP growth in Q2 (+2.1%) slowed by 1.0% as a surge of consumer spending was somewhat offset by weaker business investment. Unemployment is steady at historical lows (3.7%), consumer balance sheets are healthy and wage growth (+4.0%) has accelerated.
US Stocks: Earnings ahead of expectations.
Both large and small cap US stocks rose as corporate earnings have generally beat expectations. According to FactSet, nearly 80% of S&P 500 companies that have reported outperformed analyst estimates.
Foreign Stocks: Non-US stocks languish.
Non-US stocks struggled with a resurgent US dollar creating headwinds and ongoing geopolitical disruption, including a new British PM overseeing a no-deal Brexit, adding to trade war uncertainty. Europe (-1.9%) lagged the more economically stable Far East (-0.4%).
Fixed Income: Fed follows through but…
Interest rates continued to fall as the Fed followed through on indications of an interest rate cut. Market reaction wasn’t initially positive as investors viewed Fed Chair Jerome Powell’s comments as indicating the Fed was not committed to an ongoing program of rate cutting as they had hoped.
Real Assets: Infrastructure equities pullback.
Infrastructure assets lagged the greater equity markets with a decline in many energy related names a contributing factor. We deemphasized energy exposure when we initially made our allocation to the space.
Alternatives: Illiquid investments add value at the right price.
Private equity strategies have made headlines by accumulating “dry powder” while maintaining strong fundraising efforts. We believe a private equity program is an important source of return for investors, but we are conscious of high valuations and this build up of capital.
Equities Total Return
|U.S. Large Cap||1.4%||20.2%||8.0%|
|U.S. Small Cap||0.6%||17.6%||(4.5%)|
Fixed Income Total Return
|U.S. Agg. Bond||0.2%||6.3%||8.1%|
|U.S. High Yield||0.5%||10.7%||6.9%|
|Munis Broad Mkt||0.8%||6.2%||7.3%|
Non-Traditional Assets Total Return
|Overall HF Market||0.8%||5.1%||(1.0%)|
|Gold Spot $/OZ||$1414||$1321||$1224|
|U.S. Dollar Index||91.6||92.0||89.7|