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Market Commentary

August 2019



Civista Wealth Management Logo
Frank P. Sudal, CFP®, CFA
Trust Investment Management

Total Returns (%) as of July 31, 2019

 
Fixed Income YTD 1 Mo 3 Mo 1 Yr 3 Yrs 5 Yrs 10 Yrs
U.S Aggregate

6.35

0.22

3.28

8.08

2.17

3.05

3.75

High Yield

10.56

0.56

1.63

6.92

6.77

5.10

8.66

Global

4.77

-0.70

3.86

4.24

0.39

0.30

1.59

Equities






U.S. Large Cap

20.24

1.44

1.69

7.99

13.36

11.34

14.03

U.S. Small Cap

17.66

0.58

-0.69

-4.42

10.36

8.53

12.47

Developed International

12.58

-1.27

-0.44

-2.60

6.87

2.39

5.84

Emerging Markets

9.23

-1.22

-2.67

-2.18

8.42

1.84

4.56

Source: Morningstar.  U.S. Aggregate - BBgBarc US Agg Bond.  High Yield - BBgBarc US Corporate High Yield.  Global - FTSE WGBI NonUSD.  U.S. Large Cap - S&P 500.  U.S. Small Cap - Russell 2000.  Developed International - MSCI EAFE.  Emerging Markets - MSCI EM.
 

Equities had their fair share of ups and downs during the month of July. In the U.S., large caps managed to advance 1.44%, followed by small caps 0.58% return.  Developed international and emerging markets were not as resilient, with declines of 1.27% and 1.22% respectively.  In fixed income, high yield led, closing up 0.56% followed by U.S. aggregate’s 0.22% return. Continuing the divergence theme, global bonds were down 0.70% for the month.

According to FactSet, “for Q2 2019 (with 77% of the companies in the S&P 500 reporting actual results), 76% of S&P 500 companies have reported a positive earnings per share surprise and 59% of companies have reported a positive revenue surprise.  However, during the month of July, analysts lowered earnings estimates for companies in the S&P 500 for the third quarter.”  Stock prices will likely follow earnings expectations in the short term, descending further, unless uncertainty surrounding the trade dispute between the U.S. and China eases.

A few months ago, the U.S. placed 25% tariffs on $250 billion of Chinese imports.  Unfortunately, the U.S.-China trade talks have continued with little progress, prompting President Trump to announce another 10% tariff on $300 billion of imports beginning September 1st.  The next round of negotiations are expected to occur in early September.  The tariffs have contributed to a slowdown in the Chinese economy, so we are cautiously optimistic that a modest amount of progress will be made.

While we expect a continuation of market volatility throughout the year due to concerns regarding the slowdown in the global economy, we do not expect a recession to materialize in the next few months.  The Federal Reserve Bank of Cleveland’s probability of recession in 1 year, which is calculated from the yield curve, declined slightly in July to 35.4%.  The unemployment rate (3.7%) is near a 50 year low and there are more job openings than job seekers. Consumers are feeling relatively good and continue to spend, as reflected in the most recent positive retail sales report.  The Conference Board Consumer Confidence Index® rebounded in July, following a decrease in June. These are all positive signals for the economy and stock market. 

The Bureau of Economic Analysis released the “advance” estimate for second quarter U.S. real gross domestic product (GDP) of 2.1% toward the end of July.  Although GDP growth declined from Q1 due to a decrease in business investment, it was still higher than analyst expectations.

As the year progresses, we are rebalancing portfolios back to their long-term target allocations and recommend that investors remain focused on their long-term goals while avoiding acting on emotion during turbulent times.