Beginning in the US, share prices moved higher during the quarter, with the S&P 500 setting a new record high. Uncertainty surrounding trade talks did cause some mid-quarter weakness. This weakness was minimized by a dovish Federal Reserve Bank (Fed) and indications of progress concerning the trade talks by the end of the quarter. Overall, economic data was mixed with a positive bias. US gross domestic product (GDP) grew 3.1% in Q1 as expected and well ahead of most major economies in the world. Employment data remained strong, despite slowing in June. The unemployment rate remained stable at a 49-year low of 3.6%, while average hourly earnings climbed 3.1% from a year earlier. The “Trump Economy” continued to motor along, much to the chagrin of his detractors, especially those in the mainstream media!
Despite some of the best economic growth in the world, consumer and business confidence indices weakened, and some survey data pointed to weaker business activity moving forward. The Fed did not cut rates at its June meeting but the “dot plots” they love to follow signaled easier monetary policy ahead. For our non-PhD’s, the dot plots reflect what level Fed policymakers think rates should be in the future. The critical point to note is that the leading central bank in the world, within six months, has made a complete 180 degree turn. From hiking rates to a posture of lowering them! For non-PhD’s this is what you call a flip-flop! We will return to this topic later in our newsletter.
In terms of the stock market, more cyclical areas of the market, that is, those that are most sensitive to the economic cycle, generally performed strongly. Financials, materials and information technology all generated robust gains. Healthcare remains challenged by potential changes to pricing legislation, and more defensive or less cyclical areas of the market advanced modestly. Energy stocks continued to struggle and were lower during the quarter.
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