The market managed to build on the strongest first half year since 1997 to post a modest +1.7% gain, but underlying that gain was a quarter of turmoil. Stocks raced out of the gate in July to set new all-time highs for the S&P 500. August witnessed a reversal in fortune, with renewed trade concerns weighing on market sentiment. As tensions eased and the Fed cut in September, stocks managed to stage a rebound to end the quarter in the black. What was notable about the September rebound was a change in leadership. Value stocks, long a laggard in the 10-year bull market, led the market higher in the final month of the quarter with energy stocks the best performer. Even with the rebound, though, value stocks still finished behind their growth peers for the quarter. In other leadership changes during September, small cap and international outperformed. The strong month was not enough to lift either group into positive territory for the quarter, though, as the deteriorating global growth outlook weighed more heavily on them than on larger cap domestic equities.
The momentum of the first quarter carried over into the second, with the S&P 500 returning 3.9% in April. As optimism over a potential trade deal with China gave way to fears of increased tariffs and a further ratcheting up of the trade war, the market cracked – falling -6.6% in May. A pledge to return to the bargaining table plus indications that the Fed was preparing to cut rates then managed to turn the market around. When the dust settled, the S&P recorded its best June since 1955 and the market saw the best first half returns in 22 years. Leadership seesawed throughout the quarter. In April and June, when trade tensions eased and the consequent expectations for global growth improved, value outperformed growth and smaller capitalization stocks did as well as or better than large cap. Overall, however, investors continued to seek relative safety in US large cap companies with reliable growth prospects. Trade issues continued to have an outsized effect on both developed and emerging international stocks, as those economies are more dependent on international trade than the US.