October 15, 2019
- Major equity indices rallied in July with the S&P 500 and others hitting record highs on better than expected earnings and economic data. Markets declined sharply in August on escalation of trade tensions and weaker than expected economic data. Markets rebounded in September on optimism that rate cuts will boost global economic growth and on hopes for renewed trade talks. There was a rotation to value outperforming growth globally during early September, which had investors wondering if this was the start of a longer lasting trend.
- S. Treasury bond yields were lower at the end of the quarter than at the beginning, but there were swift ups and downs during the quarter. For example, the benchmark 10-year U.S. Treasury bond yield dropped as low as 1.4% briefly before spiking to 1.9% ten days later only to decline again to end the quarter at 1.7%, down from 2.0% on June 30.
- Global yields continued to be exceptionally low due to accommodative central bank policy in reaction to slowing economic growth. Worldwide 16 central banks cut rates during the quarter. The amount of debt with a negative yield increased throughout the quarter to over $15 trillion.
Overview of the Economy
- S. gross domestic product (GDP) rose 2.0% for the second quarter, above forecasts. The euro area economies continued to slow due to the impact of trade conflicts, soft auto sales, and Brexit uncertainty. Germany’s manufacturing Purchasing Managers’ Index (PMI) dropped to a seven-year low of 43.2 in July. Globally, service sector and labor market data continue to be solid. U.S. housing activity has picked-up with lower mortgage rates.
- The U.S./China trade conflict intensified with both sides announcing more tariffs.