June 2019 Commentary
What a long, strange trip it’s been. The year 2019 started with strong growth. The market jumped in January to an 8% growth rate and continued its rise through February. A detour emerged in March that has taken the markets into choppy waters.
Slowing growth after a busy first two months may seem scary. Not to worry, a recession is not looming on the horizon. Remember, nothing continues to grow continuously. Q2 has again shown that what goes up must come down as the markets slowed further.
In May, stocks dropped down to their pre-Q1 boom levels, dropping into correction territory for many small and mid-cap indexes. The political economy has been a driving force for markets in Q2.
Increased frustrations with China have led to the imposition of tariffs by the White House on Chinese exports into the U.S. Retaliatory tariffs on U.S. goods imported into China. This caused concern about kicking off a trade war, increasing the cost of doing business in both countries, and negatively impacting markets.
Investors have decreased confidence in the stability of the political economy. Just this week, the Federal Reserve’s hotly-anticipated decision to keep interest rates unchanged signals trust in the markets’ stability. They did note that they would not hesitate to loosen rates if U.S. economic growth sags.
More than half of Fed members anticipate loosening rates at some point in 2019. Due to increased global uncertainties, a trade war with China, and slowing economic growth, the central bank anticipates economic growth at 2.1% for 2019, a significant decline from 2018’s 2.8% growth rate.
These slower growth rates coupled with rising investor insecurity have led to a late-cycle phase of the economy. Late-cycle investments can still yield profitable results for the steady shareholder.
The instability of the markets can lead to rising and falling stock prices. Investors who buy low and hold can ride the growth wave on the way back up. Like waves, markets may rise and fall. Overall rising sea levels benefit steady investors.