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Monthly Market Update - June 2017

Global stocks had modest gains for the month of June, up 0.6%. The stock leader for the month was U.S. small cap, which rose 3.5%. Bonds had mostly negative returns for the month as a result of the slight increase in yields. Alternative asset classes had mixed results.

Economy

  • U.S. real GDP expanded at an annual rate of 1.4% in the latest measure, down from the previous quarterly report.
  • Inflation (CPI) fell to 1.9% on a year-over-year basis, a reflection of lower prices for energy as producers continue their struggle to find a balance between global supply and demand.
  • In June 222,000 jobs were added – a strong report indicating a tighter labor market. U.S. unemployment rose slightly to 4.4% as more workers entered the labor force.

Stocks

  • The S&P 500 Index crept higher in June with a 0.6% return driven by the financial and healthcare sectors. U.S. small cap stocks led global stock returns with their 3.5% gain.
  • International stocks in developed countries did not add much to overall returns. Emerging markets stocks, however, returned 1.0% in June.

Bonds

  • The Federal Reserve raised rates for the fourth time this cycle, increasing the target rate by 0.25%. They also laid out additional details about their plans to reduce their balance sheet later this year by not reinvesting bond assets.
  • As a result, bond returns in the U.S. were either flat or slightly negative depending on the maturity range.
  • International bonds were also slightly in the red.

Alternatives

  • Results for alternatives were mixed in June. Positive contributions came from global REITs and reinsurance, which rose 1.1% and 0.4% respectively.
  • Despite a seven-day consecutive gain in oil prices at the end of June, commodities as an asset class were down slightly by 0.2%. Managed futures also fell during June by 1.9%.

What's Working in 2017?

One short answer to what’s working in 2017 is international stocks. Looking beyond international, however, one can see there are a number of other stock segments that provided solid returns for the first half of 2017. In aggregate, diversified investors should have earned favorable returns. For example, a basic benchmark index portfolio made up of 60% stocks/40% bonds rose 7% in the first half of 2017, mostly due to the 11.3% gain in global stocks from strong earnings and confidence about the global economy. Emerging markets, part of the global stock market, boosted those year-to-date results with an 18.4% jump.

Much has happened in 2017 so far, but markets pushed higher, reflecting solid fundamentals. The list below is a brief recap of world events (good, bad, and ugly) which have transpired thus far:

  • U.S. political administration changes
  • Deadly terrorist attacks occur in Turkey and the UK
  • UK activates Article 50 (Brexit process commences)
  • Global tensions with North Korea build
  • France elects Macron, setting country on new path
  • Cyberattacks globally continue to threaten computers
  • Puerto Rico files for local government bankruptcy
  • Fed raises U.S. interest rates twice
  • U.S. job openings hit new high
  • Broader access to China’s local stock market begins
  • Global stocks make new highs

As we begin the journey through the second half of 2017, we believe that global stock markets have rewarded disciplined investors with strong returns so far this year. Of course it is easier said than done, but despite positive stock market performance and historically low volatility, it is important to remain focused on the future and prepare for the possibility of more volatility or unexpected events. Maintaining broad global diversification across regions and asset classes can help reduce exposure to unnecessary risks in your portfolio.

Sources: Bureau of Economic Analysis (BEA), Federal Reserve, JP Morgan, Morningstar Direct, Standard and Poor's. Basic Benchmark Index is a hypothetical index portfolio constructed as follows: 37.5% S&P 500 Index, 22.5% MSCI EAFE Index, 20.1% BbgBarc U.S. Govt/Credit Bond Index, 19.9% BbgBarc U.S. TBill Index. For additional information regarding our Basic Benchmark Index disclosures, please contact your advisor.

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