Global stock markets had their best first-half returns since 1997.
After soaring to a record high in late June, the S&P 500 was up a whopping 18.3% at midyear. The Dow Jones Industrial Average gained 15.3%, and the tech-heavy Nasdaq 100 surged 21.5%.
Developed foreign markets, as measured by the MSCI EAFE Index, gained 14.2% this year so far.
All advanced 6%-7% in the month of June alone.
Markets are up despite signs of moderating economic growth, a slowdown in the U.S. and global manufacturing sectors, and a general clamoring for the Federal Reserve to cut interest rates in order to head off further slowing.
Stocks are up, but investors are cautious
Yet many investors are cautious, as the popularity of low volatility and defensive equity strategies shows. A dramatic U-turn by global central banks combined with an escalating trade conflict have made investors uneasy about the economy and uncertain about where markets go next.
Defensive equity strategies have gained in popularity this year and there’s been increased demand for bonds as safe havens as investors flock to safety, worried the biggest stock market rally in decades could come crashing down.
Where do we go from here?
While we cannot predict or control the markets, as advisors, we work to prepare our clients for many different outcomes.
History shows that sell-offs are normal and should be expected, and one of the simplest and most effective ways for investors to navigate these downturns is to own bonds. Most investors need a ballast against the volatility of the stock market, and bonds are probably the best asset class to accomplish this.