Our detailed quarterly commentary is available here
After a 10% market correction in the first quarter, markets were able to bounce back somewhat in the second quarter, recently reaching new record highs albeit with increased volatility. Growth stocks continue to lead the way. The broad-based, strong economic foundation coupled with corporate tax reform should sustain growth and investment, supporting the equity markets even in a higher rate environment. Corporate earnings will be challenged by higher input costs such as energy, labor and transportation. Political uncertainty surrounding trade relationships and threatened tariffs will potentially impact the consistency of the global economic growth environment.
Interest rates were also a concern for investors in the second quarter. Our outlook for rising interest rates remains in place, as the quarter saw yields on two-year notes rising to their highest level since 2008. Longer term rates have finally begun to rise as well. The Federal Reserve Board has become increasingly clear about removing the still accommodative policy through slow but regular rate hikes, and also by reducing the Fed’s Treasury and mortgage-backed security holdings. Rising interest rates generated negative returns across the bond market with the exception of floating rate securities.
As always, we will continue to assess both the risks and opportunities that present themselves in the second half of the year to remain well positioned in this dynamic market environment.