LOCKED & LOADED by Jimmy C. Chang, CFA, Chief Investment Strategist and Senior Portfolio Manager at Rockefeller Capital Management

Those who sold in May and went away were hit with seller’s remorse in June. The sharp drawdown in May was erased as the S&P 500 Index gained 6.9%. Make no mistake, it was all about the Fed’s further pivot to the dovish side. Inflation expectations in most developed countries continued to drift lower, and recent economic data indicated further weakening of the global economy, including manufacturing activity in the U.S. This combination prompted the Fed to signal that a rate cut was imminent, propelling equity valuations higher. It also fueled speculation as shown by Bitcoin’s parabolic surge. The 10-year Treasury yield fell to around 2%, and the 3-month/10-year yield differential inverted to as wide as 26 bps. The collapse in sovereign bond yields was a global phenomenon with the German 10-year Bund yield dipping to negative 33 bps. European Central Bank President Mario Draghi said additional monetary stimulus may be required to support Europe’s flagging economy; but President Trump rebuked the comment as overt currency manipulation aimed at weakening the Euro. Trump won the verbal intervention race as the U.S. Dollar Index dipped to three-month lows. In the commodity space, copper and iron ore prices rallied despite concerns over weakening global demand. WTI crude oil prices surged on rising Middle East tensions and large inventory drawdowns.

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