And just like that, 2019 is half-way over.
This week will give me the ability to more exhaustively evaluate what 2019 has had to offer so far (hint: it’s all positive for investors) and to look into the second half of the year and what may make sense as we prepare for what lies ahead.
But for now, I can say that this was the strongest month of June for stocks since the 1930s and it represents a V-shaped recovery to how markets performed under the trade pressures of May.
This week’s trek into the Dividend Cafe looks at the state of the trade war, handicaps some expectations around the China talks this weekend, and offers a more logical take on that idea of “the market being at an all-time high.”
We look at the Democratic debates of this week and what they may mean for investors, we peak under the hood of Europe’s economy, we evaluate the health of the bull market, and we discuss the state of U.S. oil markets. We have charts. We have analysis. And we have fun. So jump on into the Dividend Cafe.
A tale of two trade wars
It was pointed out to me in a research paper that last spring (2018) when "Trade War 1.0" was launched by President Donald Trump, the U.S. dollar rallied higher, emerging markets rolled over badly, gold tanked, bond yields stayed flat, the Fed was extremely hawkish, and U.S. tech stocks led the market.
This spring, when "Trade War 2.0" was launched via Twitter, the response has been different in all categories. The Fed has been extremely dovish. U.S. bond yields have collapsed. Emerging Markets have done very well. The dollar has dropped. Gold has gone higher. And tech stocks are lagging, not leading, the market.
Ultimately, the Fed's change of posture is more a cause of some of the other changes than an effect. I also believe that emerging markets were more logical to sell off a year ago on a valuation basis than they are now. I have long given up on speculating on why gold does what it does (I recommend you do the same).
Essentially, I think the various complexities around the trade war are more developed than they were a year ago, and the entire environment around monetary policy is categorically different (for good or for bad).
Was the latest market rally Fed-driven or trade-driven?
I think both factors are at play throughout all aspects of markets right now, so the answer is not mutually exclusive of the other option. That said, it does appear that market sentiment has been more impacted in recent weeks by the signaling of monetary accommodation than the idea of an imminent trade deal.
Stocks with more direct exposure to the trade war (semiconductors, emerging markets, etc.) are all up in this market rally but not as much as the broad market itself (indicating more Fed causation than trade war).
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David L. Bahnsen is the founder, Managing Partner, and Chief Investment Officer of The Bahnsen Group, a bi-coastal private wealth management group with offices in Newport Beach, CA and New York City, managing over $1.5 billion in client assets.
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