U.S. Equities had a relatively calm July with generally positive quarterly earnings reports and a down tick in concerning headline news. The biggest event to come out of July happened on the month’s final day when the U.S. Federal Reserve cut rates for the first time since 2008. This decision was largely expected and had been telegraphed by the Fed for some time, but investors were somewhat disappointed by the Fed’s explanation. As opposed to justifying the cut as a way of getting ahead of potential economic weakness, Fed chairman Jerome Powell explained it as a mid-cycle adjustment and that more cuts would require more concrete economic weakness. This statement has created a heightened sense of uncertainty about what the Fed will do next.

 

The majority of S&P 500 companies that have reported Q2 earnings exceeded expectations and so far an interesting trend has appeared. Companies in the S&P 500 with larger global revenue exposure underperformed those with less global revenue exposure during Q2 due to a strong dollar and global economic questions.

 

The U.K. elected a new Prime Minister, Boris Johnson, as Brexit negotiations have been stalled for some time. A new Prime Minister means a possible shift in tactics to get the Brexit deal solidified or that the U.K. will exit the EU without a deal in place. The underperformance of U.K. equities relative to the rest of the EU worsened in the second quarter.