Among the biggest questions on investors’ minds today are questions regarding interest rates and trade. Is the Fed going to cut rates despite the better-than-expected June jobs report? Are the US and China going to reach a trade deal? Against this backdrop, the S&P 500 (SPX) had one of the best Junes in its history. June 2019 was the seventh best June ever for the S&P 500, and second best in the “modern era” (since 1950), as the Index gained nearly 7%. With last month’s strong performance, the S&P 500 Index notched a gain of more than 17% through the first half of the year, and each of the major US large cap indices have recently reached new all-time highs.
Despite the geopolitical uncertainty around the globe, the vast majority of asset classes are in positive territory for the year, including US equities, international equities, fixed income, and even commodities like gold and crude oil. Falling yields have been a tailwind for fixed income, especially long-duration US Treasuries, as the US Treasury Ten Year Yield Index (TNX) is down more than 60 basis points through the first half of the year, recently hitting a new multi-year low. While some sectors, like technology, some styles, like growth, and some individual stocks have outperformed the broad market this year, the biggest benefit to investors has come from making an asset-class-level-allocation decision to be more heavily-invested in “risk-on” assets, such as US equities. Below is a chart of the S&P 500, which returned to a positive trend in January of this year, where it has remained since. Notice, with the most recent push higher in June the Index exceeded the all-time high it reached in May and is closing in on the 3,000 level for the first time ever.
So, where are we headed from here? With the market up more than 17% through the first half of the year, many investors may be asking “Is there anything left in the tank?” Historically, when the S&P 500 has posted a return of 10% or more through the first six months of the year, the second six months, on average, have seen the Index gain more than 6%. There have been 31 occasions when the S&P 500 gained 10% or more through the first six months of the year. In 23 out of those 31 years, the second half of the year produced positive returns, while eight out of the 31 saw negative returns in the final six months of the year. On average, the return for the second six months across all 31 years was +6.24%. The table below shows each year in which the S&P 500 was up 10% or more in the first six months of the year (January-June) along with the return for the second half of that year (July-December).
Within our Dynamic Asset Level Investing (DALI) tool, domestic equities continues to rank number one from a broad asset class perspective, followed by international equities. Heading into the second half of 2019, these rankings favor a risk-on posture as domestic and international equities are the two strongest markets in terms of relative strength.
#TradeTalks: Can the Second Half of 2019 Carry Momentum from June?
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