ETON Advisors Newsletter - July 2019

Will the Fed Disappoint?

Stocks and bonds delivered spectacular performance in the first six months of 2019. The S&P index of large-cap U.S. stocks returned 18.5% for the year through June 30, while the Barclays Aggregate index of investment-grade bonds delivered an equally impressive 6.1% return. Small cap stocks, foreign equities, publicly traded REITs, MLPs, and even gold all posted double-digit returns for the first half of the year.

Declining interest rates—sparked by the Federal Reserve--deserve most of the credit for this impressive performance. While the Fed has not officially cut interest rates this year, investors are convinced that the central bank willcut rates by around a full percentage point over the next 12 months and will maintain its large, accommodative balance sheet for the foreseeable future.

But what should we expect for the second half of 2019? On the one hand, economic growth in the U.S. remains reasonably healthy—if not robust. And yet there are several material risks which could spook investors over the thinly-traded summer months.

Having earned at least a full year's worth of expected returns the first 6 months of 2019, now may be a good time to trim holdings that have performed well and add to lower-volatility assets for the balance of the year.