As we enter the second half of 2019, Goldilocks continues to walk a tightrope as US investors balance the potential benefits of Fed easing with continued weak global leading economic indicators, lingering trade jitters and elevated valuations, says Alec Young, FTSE Russell managing director of global markets research.
Young highlights important data-driven insights investors should consider for the remainder of 2019:
- Explaining large cap leadership: “Trade tensions have investors focused on domestic over international exposures, but sector composition has been the biggest driver of 2019 size performance as greater technology exposure and a lower financial weight have helped fuel large cap leadership over the small cap Russell 2000 Index.”
- US equity markets continue to lead. “Faster US growth and higher interest rates are supporting the US dollar and, despite the Fed’s dovish pivot, US growth and rates both remain well above Europe and Japan. A stronger greenback dilutes US investors’ overseas equity returns as negative currency translation subtracts from dollar-denominated international stock performance.”
- Sector returns tell a story. “Depressed interest rates are favoring sectors with higher dividend yields like real estate investment trusts, utilities and consumer goods. Meanwhile, growth worries have investors paying up for organic growth wherever they can find it. This has helped the technology and consumer discretionary sectors to outperform.”
- Gold glitters. “Gold has surged as markets anticipated Fed interest rate cuts. A low risk-free rate reduces the opportunity cost of holding gold, which pays no interest.”
You can hear more global macroeconomic and asset insights from Alec Young in the upcoming FTSE Russell Global Markets Research Second Half Investment Outlook Webinar on July 24 at 11 a.m. ET. Register here.
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