Correction? What correction?
Equity markets around the world plowed ahead in the 2nd quarter, putting last year’s very difficult 4th quarter finish further into the rearview mirror. In fact, as you can see from the accompanying table, nearly all investible assets have had a good run this year: stocks, bonds, and commodities are all up significantly.
What is driving markets?
It is NOT economic data, which has weakened globally, including in the US. It is NOT positive comments from CEOs, as earnings estimates for 2019 have fallen, not risen. It is probably NOT relief on trade skirmishes, which have shown no progress amidst various fits and starts. By process of elimination, the driver of returns across equities, bonds, and commodities this year seems to be an expectation that the Fed will cut short-term interest rates in July, by at least a quarter of a percentage point, and maybe as much as half a percentage point.
With low inflation and sluggish economic growth, the Fed certainly has justification for injecting some monetary stimulus here. But market participants are understandably wary… we’d prefer to see equities rise due to strong results from companies, rather than a Fed rescue effort.
We’ll be looking for better fundamentals in the second half of the year.
