June Final Returns

After our monthly returns peaked at 3.11% on June 20th, the impending trade war with China annihilated most of our and the overall market’s progress. The S&P fell about 1% into negative territory. Our less-risky and more small-cap oriented portfolio lessened gains to 1.09% for the period for an overall monthly beat of 1.85%. The Russell 2000 briefly peaked after a YTD gain of 11%, which suggested overvaluation. However, its reduced exposure to the trade war compared to the rest of the market continues to benefit the index moving forward. Below is a comparison of a $1,000 investment into the TCquant portfolio versus the S&P.

The end of June saw a brutal sell off as tariffs were first enacted, but July has shown the marketĀ  once again discounting the full effects. The total damage to the Chinese and American economies is shown below. Who will win the trade war? The United States has a robust economy, albeit with slowing momentum, and the healthiest labor market in years. Quarter 2 GDP has been forecasted as high 5% (although unlikely). The US also is less export and import driven than China. The renminbi has depreciated sharply over the last few days, and there is some fear that China will use currency devaluation as a weapon. However, the PBOC took actions to stabilize the decline, showing a reluctance to do so. Benefitting China is a dictator who doesn’t face opposition from Congress or constituents, and thus can potentially outlast the US if the trade war spans multiple years. Tempering this upside, the Shanghai Composite Index has been crushed this year and is down 15% YTD. Perhaps there is a lack of business confidence despite a confident government. The Chinese economy is also facing its worst economic indicator data in a decade. Regardless, the only win for investors is a speedy resolution.

For a bonus graphic, we want to thank Warren Buffett for driving Q2 consumer spending (humorous).


Note: Apologies to our readers for the delay in the final June update, but the July 4th week was a busy one as we updated our quantitative model and rebalanced the portfolio.

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