July 2019 Monthly Market Review
July saw the trend of positive returns across most asset classes continue, but there was some dispersion. Central bank activity continued to take center stage. The Fed cut rates by 0.25% during the month, effectively unwinding its rate hike from December 2018. At the meeting, the Fed also decided to end balance sheet reduction effective August 1, 2019, which is two months earlier than previously indicated. Low inflationary pressures in the economy were cited as a reason for the cut. In his post-meeting comments, Federal Reserve Chair Jerome Powell described the rate cut as a mid-cycle adjustment—not the start of a prolonged series of cuts. Markets interpreted these statements as hawkish and began to price in lower probability of an additional cut in policy rates at the September meeting. However, President Donald Trump’s August 1st Tweet announcing that additional tariffs will be placed on Chinese goods caused a sharp reversal on market expectations of Fed policy.
Equity investor optimism was fueled by expectations of Fed action. The Russell 3000 Index gained 1.5%, which represented the sixth time in seven months that U.S equities were up. While domestic equities remained strong, international equities reversed course. Returns across the euro area were broadly disappointing in response to weak economic data. Renewed concerns over Brexit weighed on U.K. equities. Boris Johnson officially replaced Theresa May as prime minister during the month. He came into office on a promise to follow through on Brexit on October 31st—with or without a deal with the European Union (EU). Johnson’s rhetoric stoked fears of a no-deal Brexit, sending the pound down 3.8% versus the U.S. dollar, hitting a 28-month low.
In the face of this uncertainty, the U.K. REIT market was down 6.4%, compared to a 0.4% rise for the broad index. Many large U.K. REITs have domestic/London exposure without much of a footprint in the rest of Europe or the globe, so would likely be impacted more in a no-deal scenario relative to broader equities. The significant retail portfolios of many larger/diversified U.K. REITs also weighed on the U.K. REIT market. In recent periods, markets have become more concerned about the impact of e-commerce, as more stores have closed and companies have reported declining sales. Brexit—particularly a no-deal version—would also likely hurt disposable incomes and make goods more expensive (weaker pound), hurting retail sales.
Emerging-markets (EM) equities underperformed their developed-markets counterparts. Returns in China were muted, as strength among large benchmark constituents such as Alibaba and Tencent was offset by weakness in financials. Financials fell on concerns regarding the health of the banking sector following the bail out of the country’s largest bank. India also came under pressure during the month, as post-election sentiment corrected sharply on weak economic data. Emerging-markets Latin America benefited from gains in Brazil, where pension reform progress under President Jair Bolsonaro provided sustained tailwinds.
Indices referenced are unmanaged and cannot be invested in directly. Index returns do not reflect any investment management fees or transaction expenses. This report is intended for informational purposes only; it does not constitute an offer, nor does it invite anyone to make an offer to buy or sell securities. Information herein has been obtained from third-party sources that are believed to be reliable; however, the accuracy of the data is not guaranteed and may not have been independently verified. The content of this report is current as of the date indicated and is subject to change without notice. It does not take into account the specific investment objectives, financial situations, or needs of individual or institutional investors. All commentary contained within is the opinion of Prime Buchholz and intended solely for our clients. Unless otherwise noted, FactSet was the source for data used in this report. Some statements in this report that are not historical facts are forward-looking statements based on current expectations of future events and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Past performance is not an indication of future results.
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