Second quarter 2019 capital markets outlook

August 2019


  • If equity performance during May reminded investors of the fourth quarter of 2018, then June performance resembled Q1 2019, as most equity markets produced returns of positive 4-7%. June returns bring YTD returns above double digits for most major equity markets.
  • The rally in equities may have been fueled by subdued concerns about trade wars, as the U.S. and China agreed upon a truce at the G20 summit that, for the moment, at least delays the imposition of additional tariffs. Global economic growth worries are still present, however, which may have supported further reductions in interest rates across the curve.
  • The Federal Reserve left rates steady during its June meeting and added more cautionary language about the state of the U.S. and global economies. While the central bank predicted no rate cuts during the year, it did leave the door open for cuts in the future, starting in 2020.
  • U.S. equity markets remain expensive whereas Non-U.S. equity markets remain reasonably valued, relative to their history.
  • Implied market volatility remains below its historical average (~19), staying below 17 throughout June, and pushing below 13 near the end of the month.
  • The Market Sentiment Indicator returned to positive (green) supported by the rebound in equity markets.
  • Market uncertainty as measured by Systemic Risk remains low, but there is potential for negative surprises, as global economies navigate their respective “late-cycle” dynamics.