Market Perspectives - July 2019

1. Market Perspectives - July 2019
Experience Insight Impact
Overview: With 6 months of 2019 in the books, we reflect on the forces driving equity markets.
It is important to weigh the evidence to assist in future positioning as market participants
evaluate economic conditions. While this year has exhibited volatility one would expect during
the advancing stages of a long bull market, this month we lay out a balanced view of a few
positive and potentially negative factors impacting the investment climate as we advance to the
second half of the year.
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2. Positive - Yields Are Low
Experience Insight Impact 2
Bond yields around the world are near lows for the past year. This provides for a climate with a lower cost of capital to be used for
borrowing for such things as capital spending, real estate purchases, etc. The above graph depicts global 10-year sovereign debt yields
in blue (and as you can see, some markets actually have negative yields). The blue dots are current yields compared to the past year, all
very close to their lows (as of 7/23/19).
Source: Bloomberg

3. Positive - Federal Reserve Update
Experience Insight Impact 3
Source: Bloomberg
• The above chart shows that the odds of a rate cut at the 7/31 Federal Reserve meeting are 100%.
• Beyond that, the market currently expects that the Fed will cut rates at least two more times over
the next year.
• Once again, if implemented, this should help reinforce the availability of financing for individuals
and businesses.

4. Positive - Earnings Growth Remains Strong
Experience Insight Impact 4
Source: Bloomberg
• Following a slowdown
late last year, earnings
have rebounded on a
trailing basis and are
close to the all-time
quarterly highs for the
S&P 500.
• The sustainability of
this earnings path will
be critical if the
market is to continue
its growth going
forward.

5. Positive - Unemployment Remains Low
Experience Insight Impact 5
Source: Bloomberg
The unemployment rate continues to trend downwards and currently rests near multi-decade lows. With consumption accounting
for roughly 2/3 of the US economy, the unemployment trend remains very positive for growth.

6. Positive - Inflation Remains Subdued
Experience Insight Impact 6
Source: Bloomberg
Inflation, as measured by the Consumer Price Index excluding food and energy, remains benign.

7. Negative – U.S. Valuations Are Modestly Elevated
Experience Insight Impact 7
Source: Bloomberg
The white line represents the average
current year projected Price/Earnings
(P/E) ratio since 2005 of the S&P 500
and the green line represents the
rolling current year P/E ratio over that
time.
As you can see from the chart,
valuations are slightly elevated (18.1x)
vs. the historical mean (15.7x).
Markets elsewhere are trading for
significantly lower valuations (Asia
Pacific in yellow, Europe in blue,
Emerging markets in orange).

8. Negative – Geopolitical Factors
Experience Insight Impact 8
Source: Bloomberg
Trade uncertainty remains a drag on the global economy. The green box above shows the declines in Asian exports for South
Korea, Taiwan, Singapore, and Hong Kong since the trade uncertainty began ramping up in the 4th quarter of last year. In
addition, political uncertainty reigns in several developed nations around the world.

9. Negative – Economic Data Has Been Soft in Some Areas
Experience Insight Impact 9
Leading indicators have turned sharply lower in recent months.
Source: Bloomberg
Richmond Manufacturing survey exhibited one of the largest declines in years.
Existing home sales remain weak, declining in the recent months despite a
better rate environment.
ISM Manufacturing new orders have fallen dramatically in recent months.

10. Negative – Rising Debt
Experience Insight Impact 10
Over the long term, the continued upward march of absolute debt levels is concerning. While the threat is not imminent, the fact that debt is
still rising in a relatively positive economic environment is worth watching.
Source: Bloomberg

11. Market Perspective - July 2019
Experience Insight Impact
Conclusion: While this is by no means an exhaustive list, these factors and others will continue to
take shape over the coming weeks, months, and quarters. As they do, positioning by investors
may shift. A flexible approach to investing, with the utilization of a variety of asset classes and
strategies, continues to be our core philosophy.
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12. Disclaimer
Experience Insight Impact
Opinions expressed in this commentary may change as conditions warrant and are for
informational purposes only. Information contained herein is not intended to be personal
investment advice for any specific person for any particular purpose. We utilize information
sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past
performance is no guarantee of future performance; investing involves risk and may result in loss
of capital. No graph, chart, formula or other device can, in and of itself, be used to determine
which securities to buy or sell, or when to buy or sell such securities, or can assist persons in
making those decisions. Consider seeking advice from a professional before implementing any
investing strategy.
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