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July 3, 2018 |

Markets remained volatile in the second quarter as news headlines were dominated by geopolitics. A strong U.S. economy and increased trade tensions helped lead U.S. small caps upward, outperforming their large cap peers. Non-U.S. equities were negatively impacted from trade rhetoric and political tensions. Additionally a stronger U.S. dollar worried investors in EM assets, which were some of the worst performing assets over the quarter.

The Fed hiked rates for the second time this year by 0.25% in June. Continued strength of the U.S. economy and firmer inflation supported the rate increase. The median estimate by the Federal Reserve is for two additional hikes this year followed by three next year. The Fed remains committed to steady policy normalization.

Overseas, monetary policy from the ECB and BOJ remains stimulative. The ECB signaled their intent to wind down their Asset Purchase Program by the end of the year. However interest rates will be held at zero through at least the end of next summer.

The 10-year Treasury yield curve continues to flatten. Many investors are keeping close watch for the slope to turn negative, which historically has been a strong indicator of forthcoming recession. For now the U.S. economy remains on solid ground and a recession doesn't appear on the near-term horizon.

July 2, 2018 |

Solar energy gets a domestic tailwind and an international headwind. California passed a law requiring solar panels to be built on all new homes being constructed after January 1st, 2020. Solar jobs now also dominate coal; The 2018 U.S. Energy and Employment Report by the National Association of State Energy Officials and the Energy Futures Initiative found that solar energy accounted for more than twice as many jobs as the coal industry over the past year. However, on May 31st Chinese policy makers announced that the country is ending its feed-in-tariffs subsidy program for solar panels.

In climate change news, John Zimmer and Logan Green, the co-founders of Lyft, published a letter on April 19th announcing Lyft’s newest social good initiative: fighting climate change by purchasing carbon credits for every mile driven. Also, according to the 2018 Bloomberg New Energy Finance Electric Vehicle Outlook report, electric vehicle sales hit a worldwide record of 1.1 million vehicles in 2017 and are expected to continue to grow. Meanwhile, China’s recent decision (on January 1st) to stop importing world’s recycling has had huge repercussions on the world’s recycling network, since it was the world’s largest importer of waste; China imported 72% of all plastic waste since 1992. The U.S., the U.K., the EU and Japan were the top exporters to China.

Although there has been positive movement in the venture capital sphere in hopes of reducing gender and minority inequalities, Fortune and PitchBook report that female founders received just 2% of venture capital dollars in 2017. Additionally, the average deal size for a woman-led company in 2017 was just over $5 million while for a man-led company, the deal size is around $12 million. However, the U.K.-based company, Legal & General Investment Management (LGIM), has launched the first gender-oriented fund that focuses solely on U.K.-listed companies. The L&G Future World Gender in Leadership U.K. Index Fund (ticker: GIRL) envisions raising gender diversity standards by prioritizing allocations to companies that achieve higher levels of gender diversity.

In February, Dick’s Sporting Goods made the bold decision to stop selling assault-style rifles and high capacity magazines, and to raise the minimum age to purchase a gun from 18 to 21. In addition, a shareholder proposal requiring Sturm, Ruger & Co. to produce a report by February 2019 detailing its gun safety initiatives and measures to monitor its products’ connection to gun violence was successfully implemented.

Several companies are facing backlash from investors and stakeholders for their roles in supporting the ongoing family separation crisis at the U.S. border. Shareholders of Abbott Laboratories, an American pharmaceutical company, are rallying support for removing the company’s connections to General Dynamics, a defense contractor. General Dynamics is currently contracted with the US Department of Health and Human Services to provide the shelter care for the separated children at detention centers. Many large technology companies are also supporting U.S. Immigration and Customs Enforcement (ICE) and have made millions of dollars doing so.

April 16, 2018 |

After January's impressive gains, equity returns reversed course in February and March to end the quarter slightly negative as inflation, trade policy discussions, and a selloff in the technology sector spooked investors. Fundamentally speaking, equities remain on solid footing and earnings expectations for S&P 500 companies have been revised higher, thanks largely in part to a growing global economy and tax reform. 

The Fed hiked rates by 0.25% in March, stating that the economic outlook has strengthened. The labor market has continued to improve and economic activity has been rising at a moderate rate. The median dot plot1 projection signals two additional rate hikes in 2018. Fiscal stimulus from tax reform and increased budget spending expanded the Fed's real GDP growth outlook to 2.7% for calendar year 2018.

President Trump announced tariffs on steel (25%) and aluminum (10%), and engaged in trade rhetoric sparking fears of a potential trade war. Trump signaled an intent to level tariffs on $50 billion worth of Chinese imports as a means to reduce the trade deficit and combat the treatment of U.S. firms' intellectual property.

Amidst this backdrop, the 10-year Treasury yield declined while short term rates increased, causing further flattening of the yield curve.