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Markets bounced back from a tough May to have a strong June. In the US, the S&P 500 rose 7.05% while the Russell 2000 increased a similar amount at 7.07%. Outside the US things also improved, developed markets were up 5.93% and emerging markets rallied 6.24%. Bond markets continued to post healthy gains with the US Aggregate Total Return Index rising 1.26% as rates fell. Capital markets firmed and spreads for riskier borrowers narrowed, the result was that high yield bonds gained 2.28%.
The market shrugged off concerns of a global slowdown, an escalating trade war, and a problematic yield curve. It seems like a topsy-turvy world where bad, or more accurately “so-so”, economic news is good news because it gives the Federal Reserve legitimate cover to cut interest rates. Reports that the President considered demoting Fed Chair Powell earlier in the year offset that legitimate cover to an unknown degree, since the Fed likes to be apolitical. The yield curve remains inverted on the very front end but has steepened a bit once you look out past two years. Trade talks with China seem to be resuming in a constructive manner, see May’s commentary for our take.
Turning to the market, June was a month where the S&P 500 rose 7% while average earnings estimates fell a just a bit. Put another way, it was all multiple expansion, which means investors were willing to simply pay more for the same dollar of earnings. In a world where interest rates are falling without an actual recession that may be rational, though there also seem to be pockets of irrationality in the market. Soon it will be earnings season, which we think will drive things for most of July and into early August.
June closed out the first half of the year and it was the best first half for the S&P 500 since the 1950’s. We at Accretive were pleased with the way our portfolios participated in the strong months, but we were particularly pleased with the way they behaved in the difficult month of May. If you have any questions, would like to find out more, or would like our take on your portfolio please do not hesitate to reach out to us.