Stocks Surge as Fed Responds to Weak Economic Data.

What happened.

Closing a remarkably strong first half of 2019, June was a positive month for stocks at home and abroad as well as for bonds. US mid-cap stocks saw the highest returns for the month, up 7.64 percent, with large- and small-cap stocks also up over 7 percent (S&P 400, 500 and 600 indices respectively). Emerging-market stocks were up by 6.24 percent and developed-market stocks by 5.93 percent (MSCI Emerging Market and EAFE indices). Bonds were up as well, with the Bloomberg Barclays Aggregate Index rising 1.26 percent. US stock markets were fairly calm, with the S&P 500 up or down over 1 percent on only two days.

Why it happened.

In June markets around the world were driven by how central banks reacted to data that suggested economies were weakening. At home, job creation fell and new claims for unemployment insurance rose. The unemployment rate, however, remains at a half-century low. Consumer confidence declined, as did new-home sales. Continuing trade tensions also weighed on economic confidence. Looking overseas, manufacturing in the Eurozone weakened and uncertainty about the economy increased. Worries rose that the UK could leave the EU without a withdrawal agreement.

How did this bad news become good news for the markets? Central banks indicated their willingness to step in to support economies. The Fed suggested a cut in interest rates was now more likely, and the European Central bank made it clear that it is ready to cut interest rates if the region’s outlook doesn’t improve. These signals made market participants more optimistic in the face of the economic news, helping stocks. And bonds got a boost because the market’s forecasts of interest rates fell. We take a look at what markets can tell us about future interest rates in this month’s side bar.

What this means for you.

At Financial Engines, we build portfolios tailored to your situation, goals and preferences. Your portfolio will be more aggressive (tending to hold a higher proportion in stocks) the further you are from retirement or the higher your tolerance for risk. This month, with stocks up more than bonds, your return will probably be higher the more aggressive your portfolio. As always, please get in touch with us, on the phone or through our website to discuss your goals or to tell us about a change in your situation.

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