Thursday, July 25, 2019

Monthly Market Insights: July 2019 | Global Greatness

Spencer Joyce, CFA
Author position
Vice President | Markets Analyst

Global Greatness

I always feel pretty good about America in July. Independence Day gets me going with a party to celebrate our freedom and prosperity. Then I usually get to take some vacation time and enjoy America’s greatness via a mix of sand, sun and golf! Even the lighter traffic with school being out gets me feeling pretty good about where I am at. And by late July I’m back in the office to witness mid-year results from many of our great companies.

The US however, isn’t the only country with great things. We know this intuitively in many ways: French cheeses, German cars, links golf, African safaris, Tahitian beaches, avocados from Mexico, Japanese sushi. And we haven’t even gotten to Italy….

But we often ignore this idea relative to our investments. Only ~5% of the world’s population lives in the US, which means there is plenty of economic activity happening beyond our shores. In fact, the rest-of-world economy is about triple the size of our economy. Even some of our biggest companies have formidable foreign counterparts: GM and Toyota, Boeing and Airbus, Pfizer and Novartis, Google and Alibaba.

It feels good to own what we know, but it is valuable to broaden our investment portfolios. While remembering non-domestic securities may pose their own set of risks, I submit to you some of the benefits and general rationale for investing abroad:

  1. Diversification: It is needlessly risky to invest in only one country, just as it is too risky to own only a single stock. The US economic and social frameworks are resilient, but not infallible.
  2. Local Markets: People need phone service in China. They also fly to airports in Portugal, shop in malls in Hong Kong, and drink water in Paris. Owning international companies and foreign markets lets you profit from these activities.
  3. Faster Growth: The world’s emerging regions are growing much faster than the US. Many areas also hold better population growth, which is a driver of future economic activity.
  4. Industry Balance/Exposure: The roster of American firms is not reflective of the aggregate global economy. For example, iron ore is essential to our modernized society, but none of the world’s mega-cap miners are American.

Your Wealth Advisor is a valuable partner. Figuring out when and where to allocate investment dollars globally is a tough task, but your Wealth Advisor can assist with proper positioning. This of course leaves more time for you to go out and experience the greatness of America, or the rest of the world!

– Spencer E Joyce, VP, CFA


Name to Know for July

Ursula von der Leyen

European Commission (EC), President Elect

Ms. Von der Leyen was elected as the 13th EC president on July 16, and will assume the position in October. The EC is the executive branch of the European Union (EU), responsible for proposing legislation, implementing policy, and budget management.

Von der Leyen assumes the role at a challenging time for Europe. She is likely to be a figure in future Brexit negotiations with Boris Johnson’s UK contingent. More broadly, she moves into power as the EU deals with slowing economic growth, migration issues and intensifying populism. Ms. Von der Leyen’s policy priorities include climate initiatives.

Markets Rundown

US Equities: The S&P 500 gained 7.1% last month, recouping all of May’s losses. The rally has continued in July, with the index up 2.8% month-to-date (total return basis).

Global Equities: Developed and emerging markets rallied in June, rising 5.9% and 6.2%, respectively.

Federal Reserve: The Fed is expected to cut interest rates by 25 basis points (0.25%) later this month.

US Treasuries: Treasuries rallied in June, pushing yields lower. Rates have stabilized and risen slightly throughout most of July.

US Credit: Investment Grade and High Yield corporate bonds yield an average of 1.20% and 3.72% over Treasuries, respectively. Spreads have not moved much in July.

Markets Rundown Source: Bloomberg


Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your per­sonal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC, A Baird Company, cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversi­fication and asset alloca­tion do not guarantee a profit or guarantee against a loss. Note: It is not possible to invest directly in an index. 

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.