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Market Commentary

A strong, but volatile quarter

By John Packs, Senior Investment Officer, VALIC Funds

2nd Quarter, 2019

Equities continued to recover from sharp declines late in 2018, with the S&P 500 hitting an all-time high in June. The S&P 500 returned 4.30% for the quarter and small caps, as represented by the Russell 2000 Index, returned 2.10%. A more than 6% decline in May was more than offset by gains in April and June.

Trade news sparked volatility. Anticipation of a U.S.-China meeting at the G-20 Summit boosted markets late in the quarter. The S&P 500’s 18.5% year-to-date return was the best first half of a year since 1997. S&P 500 earnings expectations for 2019 continue to fall. The number of S&P 500 companies with profit warnings for this quarter is the second highest in over 10 years according to FactSet.

Bond returns were positive in Q2 2019 as rates fell and credit spreads narrowed. The Bloomberg Barclay’s Aggregate Bond Index returned 3.08% and the FTSE High Yield Market Index returned 2.36%.

The yield curve inverted again as short-term interest rates climbed well above those of 10-year Treasuries. The Federal Reserve shifted to a dovish outlook, sending a powerful message that it stands ready to cut rates, a significant factor for both equities and fixed income.

Trade uncertainty and weak growth in Europe continue to dampen global growth. Manufacturing output is now falling in many Asian countries. The MSCI EAFE Index returned 3.68% and the MSCI Emerging Markets Index returned 0.61% for the quarter.

The S&P 500 Index is representative of leading companies in leading industries reflecting the U.S. stock market. Russell 2000 index measures performance of 2,000 small-cap companies in the Russell 3000 Index, comprising 3,000 biggest U.S. stocks. Morgan Stanley Capital (MSCI EAFE) Index tracks performance of 900 securities listed on stock exchanges of 21 EAFE countries. MSCI EM Index measures equity market performance in global emerging markets. Bloomberg Barclays Capital U.S. Aggregate Bond Index measures investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. FTSE High Yield Market Index measures the performance of high-yield debt issued by corporations domiciled in the US or Canada. Indexes are not managed, have no identifiable objectives and can’t be purchased.

Past performance does not guarantee future performance of any investments. This commentary is provided for general informational purposes only and does not represent a recommendation or solicitation for any financial transaction.

Securities and investment advisory services offered through VALIC Financial Advisors, Inc. (VFA), member FINRA, SIPC and an SEC-registered investment adviser.

Annuities are issued by The Variable Annuity Life Insurance Company (VALIC), Houston, TX. Variable annuities are distributed by its affiliate, AIG Capital Services, Inc. (ACS), member FINRA.