Tension and uncertainty didn’t appear to affect the markets in the second quarter. Despite rising global trade tensions, a migrant crisis at the U.S. southern border and a seemingly higher possibility of Britain exiting the European Union without a divorce deal, global stock markets climbed a wall of worry in the second quarter to deliver favorable returns for disciplined investors.
The market found reasons for optimism as the U. S. economy marked its longest expansion in history, breaking the previous record of 120 months established in the 90s. The unemployment rate declined from its peak of 10% in October 2009 to 3.7% as of June 2019, which was near the 50-year low. 1
The current expansion, although the longest, has been weaker than other periods in history. GDP has grown by 25% since June of 2009, the start of this expansion, compared to 42.6% for the expansion in the 90s. 2
The Only Certainty Might Be Volatility
The U.S.-China trade war continued to rattle the market throughout the second quarter, contributing to uncertainty in a global economy that is beginning to show signs of slowing down. Perhaps the only certainty in this market is volatility, as illustrated by the S&P 500 this quarter; it hit new highs in April and dropped 6.4% in May only to rebound in June.3
Picking when to
get in and out of the market is both difficult and ineffective, and volatility
makes it even riskier. A diversified portfolio, however, is designed to help
investors weather different market environments and business cycles and result
in a greater likelihood of achieving long-term financial objectives.
Second Quarter 2019 Returns

Returns shown in the chart above are for second quarter 2019.
Source: Morningstar®, data as of June 30, 2019. See disclosure for more information.
U.S. large-cap stocks, represented by the S&P 500, gained 4.3% and took the lead among equity asset classes this quarter. Within the large cap segment, growth stocks (Russell 1000 Growth Index, +4.6%) were ahead of value stocks (Russell 1000 Value Index, +3.8%) by a small margin.
Small cap stocks, represented by the Russell 2000 Index, were up 2.1%, underperforming U.S. large cap stocks.
International developed stocks produced solid returns. Additionally, a weakening of the dollar relative to other developed-country currencies further benefited U.S. investors in overseas markets. The MSCI EAFE Index was up 2.8% in local currency terms and 3.7% in USD terms.
Emerging markets stocks, represented by the MSCI Emerging Market Index, were up 0.2% in local currency terms and 0.6% in USD terms. Declines in Chinese stocks, seemingly fueled by trade concerns and fears of a technology cold war between the U.S. and China, weighed heavily on emerging markets stocks.
World Asset Classes
Returns for the Second Quarter and YTD 2019

Source: Morningstar®, data as of June 30, 2019. See disclosure for more information.
Future Fed Rate Cuts May Be a Possibility
On the fixed income side, as fears of a global economic slowdown ramped up in the face of rising trade tensions, some market watchers were hoping for a pre-emptive rate cut from the Federal Reserve to ease the pressure on the economy. While the Fed did not cut rates, it did hold the federal funds rate steady in its June meeting. There were also some indications that future rate cuts are a possibility, which gave the market a boost.4
Although part of the U.S. yield curve remains inverted, with three-month Treasury Bills yielding more than 10-year Treasury Notes, the curve steepened in the two-year to 10-year portion, with two-year Treasury yields falling more than 10-year Treasury yields.5
As yields fall, bond prices rise. The Bloomberg Barclays Aggregate Index, representing investment-grade U.S. bonds, posted robust returns and gained 3.1% for the quarter. Municipal bonds, represented by the BBgBarc Municipal 1–10Y Index, also had a respectable quarter, returning +1.6%.
After lackluster performance in 2018, the emerging market debt segment has had a very strong year so far and was the best performer among all asset classes this quarter. JPM GBI-EM Global Diversified Index (UH), representing local currency bonds issued by emerging-market governments, returned an attractive +5.6%. High yield bonds (represented by ICE BofAML BB-B US CP HY Index) did not fare as well as other bond market segments this quarter, but still gained 2.8%.
Long-Term Focus and Discipline Were the Keys to Success
A diversified investment portfolio is better positioned to weather market shocks. While the future is unknown, those investors with a broadly diversified portfolio can rest assured that they have a strong defense ready to face the challenges that markets may bring.
U.S. Stock Market: Russell 3000 Index
International-Developed Stocks: MSCI EAFE NR Index
Emerging-Markets Stocks: MSCI EM NR Index
U.S. Bond Market: Bloomberg Barclays Aggregate Index
Emerging-Markets Bonds: JPM GBI EM Global Divers TR Unhedged
Return data represent past performance and are not indicative of future results. Historical returns of indices do not reflect applicable transaction, management or other applicable fees, the incurrence of which would decrease historical performance results. Index information has been compiled by Wipfli Financial from sources Wipfli Financial deems reliable, but has not been independently verified. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only. Indices are unmanaged. It is not possible to invest directly into an index. Any charts and graphs represented herein are for informational purposes only and cannot in and of themselves be used to determine which securities to purchase or sell, or when to purchase or sell securities.
Source for all return data: © [2019] Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.