A standing ovation to our investors who did not panic leading up to last Christmas Eve. Being a disciplined investor with a strategic allocation while investing with a purpose led to a significant increase in your portfolio during the first six months of 2019. At the end of last year, U.S. Stocks were millimeters from a -20% bear market decline. After what might have been an overly aggressive policy, the Fed took note and changed the direction from tightening to loosening heading into the winter months. The domestic stock markets reacted quickly with the best first half of the year since 1997.
2019: The First Half
In the recent past, domestic stocks thrived while other asset classes did not meet performance expectations undercutting overall portfolio performance returns. Finally, multiple asset classes produced satisfactory returns. International stocks followed U.S. stocks while finally starting to show value with significant growth. The return of international equities may be propped up more from an accommodative monetary policy than strong corporate earnings.
Volatile and declining interest rates finally created a mid-single digit return for most bond funds while commodities continue to struggle behind low inflation and falling oil prices.
After the most significant decline since the great recession the 4th quarter of 2018, the first half of 2019 was a time to remember. What will the second half bring?
2019: A Look Ahead
As the saying goes, past performance is not indicative of future returns. Just because the first half of 2019 was great for domestic stocks does not mean the second half will follow. This chart provides a reminder.

The U.S. economy is in late cycle with slowing growth, but no imminent recession. Expect tougher sledding the second half of the year with domestic stock reliant on an easing Fed policy (rate cuts) and a resolution to the trade war with China.
Global economic growth is expected to continue at an even slower pace. Lower earnings growth with international stocks suggests a much flatter trajectory for international equity markets through the end of the year.
Look for volatile interest rates with no breakout in either direction for bond prices.
Overview
A slowing, but steady late-cycle U.S. economy will be strongly influenced the second half of the year by two items: the trade war with China and the Fed monetary policy decisions.
International stocks have solid value, slowing international growth, and accommodating monetary policy which should produce muted returns. Low and volatile interest rates should bring bonds back to slightly positive returns after they finally broke out the last six months. The overall strategy is to get defensive but stay invested with a strategy of using an asset allocation close to your strategic target.