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Around the World in 80 Seconds - Q2 Recap

The second quarter of 2018 saw domestic equity markets rally, European and Asian equity markets decline in US Dollars, a spike in oil prices, much higher volatility, a stronger US Dollar vs. all major currencies, and an increase in both short and long-term term rates. (The following link is our around the World in 80 Seconds -Q1 link) https://www.greenportcapitaladvisors.com/single-post/2018/04/04/Around-the-world-in-80-seconds)

United States - Markets sure did zig and zag a lot during the second quarter. Noticeably stronger domestic economic data pushed US stocks higher while the threat of trade wars created fear of an economic collapse. Despite the craziness, U.S. stocks gained about 3% during the second quarter. The VIX which measures the implied volatility of the S&P 500 jumped from 11% at the beginning of the quarter to 16% at the end. The Federal Reserve also raised its target interest rate range for the second time this year to 1.75%-2.00%. Stronger economic data and Fed increases pushed the 10 Year Treasury Rates to 2.85% from 2.40% at the beginning of the year. Of note was the spike in oil prices, up 15% for Q2 and 58% over the last year. Europe – Local market European returns were in line with U.S. returns, however a much weaker Euro and British Pound deteriorated those returns for unhedged U.S. investors. The Pound lost 6.5% and the Euro was down more than 5% as trade war talks heated up and there was a stronger than expected repatriation of U.S.Dollars as the TCJA took effect. The European Central Bank announced an end to their ultra-easy monetary policy but a noticeable slowdown in second quarter economic growth may change that. Asia – Asia, in particular Japan, continued to do what it has done for a long time. Make some minor policy changes and talk about economic revival only to see the same disappointing results. Anemic growth and non-existent inflation. Local Asian markets were down for the quarter and the Yen lost 4% vs the Dollar to further penalize U.S. Investors. We continue to favor stocks over bonds and domestic equities (in particular small caps since they are less vulnerable to tariffs) over international equities. We expect rates to continue to rise but at a modest pace. We are looking for a further bounce in the Euro to further hedge our limited Euro exposure. We expect volatility to remain high and inflation to remain subdued despite the tighter labor market. Have a wonderful Fourth of July, The GreenPort Team

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