As the second half of the year opens the same geopolitical rumblings which have moved in and out of the news over recent months flared up again. The immediate catalyst was a missile test by North Korea that indicated an enhanced sophistication, and the upcoming G20 summit in Germany, and Trump’s second official foreign tour. The North Korean situation is being described as Trump’s first foreign policy test, and it will be watched avidly by both the domestic and international community.
Meanwhile US equity markets continue to be buoyant – returning 0.6% (S&P 500) in June (ytd 8.7%) , with particular strength in financials (+6.4%). This sector has benefited particularly from strong bank stress test results and the recent rate rise.
Emerging markets have continued to be strong both in bonds and equities (the MSCI Emerging Markets index is up over 17% ytd), while China rose 3% over the month on the news that the A shares would be added to the MSCI emerging markets index. Oil experienced more volatility over the month (losing as much as 12% at one stage) but ended the month -5%.
Central banks and their preference for telegraphing events far in advance are under scrutiny as momentum for relaxing asset purchases seems to mount, the ECB gave a few clues as to their preference for an easing off the gas pedal (but not a full blown slamming of the breaks) over recent days, and there are also indications that the US Fed has a number of members leaning towards sooner action.
As we look to the second half of the year it is tempting to wish to lock in the significant returns of the year to date to protect the gains and guard against a later year correction. In coming posts we will explore what options lie ahead to an average institutional investor today.