Quarterly Market Commentary Second Quarter 2019

The Fed Signaled No More 2019 Hikes

Two days before the quarter ended, the Fed held the line on interest rates and formally suggested that no cuts were coming in 2019. The central bank suggested that one or two cuts might happen, but not until 2020. The Federal Open Market Committee voted 9-1 to keep the benchmark rate in a target range of 2.25% to 2.5% – hardly a split decision (St. Louis Fed President James Bullard voted to cut rates).

News of the Fed’s decision pushed the 10-year yields to end the quarter at 2.00% and the 2-year to 1.74%. The 10-year U.S. Treasury – the benchmark used to decide mortgage rates and the most liquid and widely traded bond in the world – steadily declined for most of the quarter and has declined consistently since about November 2018, when it stood at 3.24%.

The U.S. and China

The investing world was tuned into tensions with China throughout the quarter, as it has been since the summer of 2018. Toward the end of the second quarter, however, attention turned to the annual meeting of leaders from the largest economies in the world – the G20. It’s an important meeting that included leaders from 19 countries and the European Union and accounts for 85% of the world’s GDP and close to 70% of the world’s population.

President Trump went to the G20 summit in Japan with a full agenda, including a resolution of trade disputes with China, building consensus to apply tougher sanctions against Iran, and talks of denuclearization with North Korea. While all are important and will impact markets in the U.S. and around the world, the trade dispute with China and sanctions against Iran appear to be more economically driven.

The IPO Market Came Roaring Back

The IPO market was very quiet during the first quarter of 2019 and then came roaring back to life. Some observers worried that 2019 would see too many IPOs as there were more than 200 expected to debut and there was concern that some interesting ideas might be lost in the Uber and Lyft IPO noise. Well, that didn’t happen.

In the second quarter of 2019, 62 IPOs raised $25 billion, the most active IPO market by sheer number in four years and the most money raised in five years. And the average return was a staggering 30%.

Could the 2019 IPO market eclipse the all-time record of $96 billion? Maybe. But remember that all-time IPO record was established in 2000.

The rest of 2019 will be an interesting six months and likely dominated by continued chatter about the Fed and trade agreements with China.