Stocks finished lower as ongoing trade tensions weighed on investor sentiment. On Wednesday, President Trump said he would use national security rules to curb Chinese investment in US companies, but communications out of Washington the remainder of the week sent mixed messages. Bonds rose as investors sought safety, though gold declined. Oil prices rose toward $80 as the US added pressure for countries to stop importing from Iran.

Weekly Returns

S&P 500: 2,718 (-1.3%)
FTSE All-World ex-US (VEU): (-1.2%)
US 10 Year Treasury Yield: 2.86% (-0.04%)
Gold: $1,253 (-1.3%)
EUR/USD: $1.168 (+0.3%)

Major Events

• Wednesday – Conagra Brands announced it will buy Pinnacle foods for about $8.1 billion.
• Wednesday – Supreme Court justice Anthony Kennedy announced he will retire July 31.
• Wednesday – General Electric announced plans for its future including divesting its healthcare and most of its oil services divisions. Shares rose.
• Thursday – A report from the Federal Reserve showed US household assets topping $100 trillion for the first time.
• Thursday – The Federal Reserve cleared most of the largest banks to increase dividends and share buybacks.
• Friday – An inflation measure used by the Fed hit 2%, reaching the central bank’s target for the first time in over five years.

Our Take

Friday marked the end of the second quarter. It felt volatile, with talk of trade war rattling global markets. Many would be surprised to learn that US stocks were up in all three months of the quarter. The same was not true of international stocks, which lost 3.5%. Emerging markets were hit hardest, down 9.7%.

US stocks have dominated this 9-year bull market, but international stocks posted the highest returns last year. This prompted many to feel the long streak was over and pile into overseas stocks early this year. So far that has been a mistake. It is yet another example of how hard it is to time these kind of cycles. But that doesn’t mean US investors should give up on global diversification.

The US is not “better”, it is simply enjoying a better run. US companies have enjoyed faster earnings growth in this bull market. That trend received a shot of adrenaline from the tax cuts, but no country has been able to maintain faster earnings forever. Meanwhile, relative to earnings, prices in the US have risen faster. Our research leads us to believe most US investors should have roughly 30% of their equity allocations overseas. The key is sticking with it and rebalancing periodically. Earlier this year, that meant selling some emerging markets and buying the US. Now it is the opposite. For those who do rebalance, different parts of the market moving in different direction creates opportunity. It is a global world, but diversification still works.