July 19, 2018
Major U.S. equity indices ended the quarter higher even though the path was bumpy. The technology stock heavy NASDAQ index and the Russell 2000 index of small-capitalization (cap) stocks hit several new record highs. European and Japanese equity markets were weak as economic data showed the softness of the first quarter continued into the second quarter and tariff related risks increased. Emerging market equities declined sharply, hurt by the stronger dollar and trade policy uncertainty.Financial Markets
- U.S. bond returns were mostly negative as yields rose on expectations for tighter monetary policy in the future.
- Industrial metals and agricultural prices dropped on tariff news. Crude oil prices rose.
Overview of the Economy
- The economic expansion in the U.S. continues to be solid as shown by improvements in manufacturing and service sector activity, retail sales, housing starts, and the labor market. Some data from Europe weakened in the quarter, such as manufacturing and retail sales.
- The U.S. Federal Reserve Open Market Committee (FOMC) raised the federal funds rate target by 0.25% and indicated a slightly faster pace for future interest rate hikes. The European Central Bank (ECB) said it will wind up its bond buying program by year-end.
- The trade skirmish heated up as the U.S. let exemptions expire and imposed tariffs on steel and aluminum imports from the European Union (EU), Canada, and Mexico which set off a series of retaliatory tariffs against U.S. exports. Rhetoric between the U.S. and China flared with the U.S. set to impose 25% tariffs on $32 billion of Chinese imports on July 6. China promised to retaliate with similar tariffs.
For an in-depth analysis of the quarter, please download the PDF.