First half of the year down, second half to go! The second quarter was a relatively quiet period for the markets with U.S. stocks appearing to move up and hit new highs frequently. The same narrative we wrote of in our first quarter note remained in full play throughout this quarter as well. The Trump Administration’s new economic, fiscal, energy, trade and environmental policies – to name a few – continued to dominate the financial market headlines. However, they were overshadowed regularly with self-imposed and often inconsistent tweets by President Trump as well as his rivalry with the media focused on the ongoing 18 plus month investigation regarding links between Russia and the Trump Campaign. Of particular note was the inability of the Republican Party’s members of Congress to agree on any of the major Trump agenda items such as health care and tax cuts.

The S&P 500 returned three percent in the second quarter and has risen nine percent year-to-date (YTD). Health care stocks rallied by seven percent and information technology, four percent, contributing handsomely to the S&P 500’s total return. Facebook, Apple, Amazon, Microsoft and Google have accounted for a significant share of S&P 500’s total returns this year (21.0% in 2Q and 26.0% YTD). The energy sector continued its slide as oil prices resumed their decline, with the sector’s equities down six percent in the last three months and 13.0% during the first half. The Dow Jones Industrial Average was up 3.9% in 2Q and up 9.2% YTD. The iShares iBoxx High Grade Corporate Bond Exchange Traded Fund (ETF ticker: LQD) was up 3.0%, while its high yield version, the largest “junk- bond” ETF by assets (ticker: HYG), returned 2.0% during the quarter.

With the S&P hitting new all-time highs nearly every other week in 2017 and the bull market having run nine years from its 2009 lows, we are now focused more on factors that could trigger a sell off and/or a correction. At the moment, we believe that geopolitical and economic cycle risks both bear close watching. On the geopolitical front, conflicts in Syria, threat of war in the Korean Peninsula, tensions between India and China and the aggressive expansion of territory by China in the South China Sea could be triggers. On the economic front, the Federal Reserve Bank is in a monetary policy tightening mode which runs the risk of dampening future growth expectations. In either case, we believe that caution is warranted.

Abroad, European equities (ETF ticker: EZU) were up nine percent in 2Q and an impressive 18.4% in the first half. Not to be left behind, Asia-Pacific equities (ETF ticker: AAXJ) were up 7.6% in 2Q and a whopping 23.3% during the first six months of 2017. Emerging Markets equities also followed, up 5.7% in 2Q and 18.8% YTD. Although some of this outperformance relative to domestic equities clearly comes at the expense of a depreciating U.S. Dollar, there was clearly a positive mood in markets around the globe. The election of French President, Emmanuel Macron, seems to have pleased investors, despite British Prime Minister May’s gamble to strength her political standing backfiring and introducing greater uncertainty to the United Kingdom’s Brexit undertaking. On a positive front, the European Central Bank has expressed confidence on its easing policy and it appears that the worst of the European Crisis debt is now behind us.

Stay tuned!