posted on July 15, 2014 08:28
Markets continued to rally in June with several major stock indices reaching new all-time highs. The S&P 500 index gained 2.1% and is now up 7.1% year-to-date. Investors were able to shake off a disappointing first quarter GDP number and were surprised with higher than estimated job growth. U.S. small stocks, up 5.3%, outperformed U.S. large cap stocks substantially, and international developed stocks performed modestly in comparison (+1.0%). Emerging markets gained 2.7% for the month, boosted mostly by Russia (+5.5%) and Brazil (+5.4%). On the fixed income side, returns were relatively uneventful. International bonds gained 0.6%, TIPS gained 0.3%, and intermediate-term bonds fell 0.1%. In alternatives, REITs gained 1.8%, and commodities had a modest gain of 0.6%. Overall market optimism remains solid in the U.S. supported by encouraging economic data and the low interest rate policy. Outside the U.S., developed economies are recovering, but China has experienced headwinds that could cause slower economic growth and volatility.
The final estimate of first quarter U.S. real GDP growth came in at -2.9% which was much weaker than the first estimate of 0.1%. While disappointing, the shortfall can largely be attributed to the unusually severe winter weather. A rebound in GDP growth is expected for the second quarter as more recent economic data releases have signaled a stronger labor market and business activity.
Inflation (CPI) for the month of May increased 0.4%. The year-over-year inflation rate increased to 2.1%, in line with the Federal Reserve’s long-term inflation target of 2.0%.
Housing starts fell from the month prior to an annual level of 1.0 million. This pace continues to be in range of the estimated 1.0 to 1.5 million needed to keep the housing market on pace with population growth and replacement housing.
Consumer confidence rose in June to 85.2, up from 83.5 the month prior. The index is now at its highest point since 2008. A solid labor market has contributed to the more upbeat consumer assessment of current and future conditions. Employers added 288,000 jobs during the month beating consensus forecasts of 212,000. This brought the unemployment rate down to 6.1%, nearly a six-year low.
The S&P 500 Index gained 2.1% for the month led by the energy and utility sectors. All sectors posted positive returns except for telecommunications and consumer staples, which declined 1.1% and 0.2%, respectively. U.S. small stocks (Russell 2000 Index) spiked 5.3% bringing them back into positive territory for the year.
Developed international stocks (MSCI EAFE Index) had a good month but performed modestly relative to U.S. stocks. The index gained 1.0%, and international small cap stocks gained 1.3%. Japan held up the index with a 5.2% gain.
Emerging markets (MSCI Emerging Markets Index) rose 2.7% for the month. Russia and Brazil boosted the index, each gaining over 5%. Indonesia was the only country in negative territory, returning -1.0%. Russia still remains the worst performer of the emerging markets, down 5.2% year-to-date.
The 10-year Treasury yield rose to 2.58%, up 4 basis points from the month prior. The Fed continued their path of tapering bond purchases in June by reducing the monthly amount by $10 billion as planned. Monthly bond purchases now stand at approximately $35 billion.
The Barclays U.S. Intermediate Government/Credit Bond Index fell 0.1%, international bonds (JPM GBI Global Ex US Hedged Index) gained 0.6%, and TIPS gained 0.3% for the month.
Commodities (DJ UBS Commodity Index) rose 0.6%. Grains dragged down the index with a sharp decline of 8.6%. Precious metals and livestock gained 7.7% and 7.4%, respectively.
The S&P Global REIT Index rose 1.8% continuing its streak of posting gains every month so far this year. The index is now up 16.2% year-to-date, outperforming any other major asset class by far.
Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar, Standard and Poor’s, Wells Fargo, Yahoo! Finance
Source: Morningstar Direct. Indices used in above graphs: S&P 500 Index, U.S. Large Value-MSCI U.S. Prime Market Value Index, U.S. Small-Russell 2000 Index, U.S. Small Value-MSCI U.S. Small Value Index, Int'l Large-MSCI EAFE Index, Int'l Large Value-MSCI EAFE Value Index, Int'l Small-S&P EPAC Small Index, Int'l Small Value-S&P EPAC Small Value Index, Emerging Mkts-MSCI Emerging Markets Index, World Stock Index-MSCI All Country World IMI Index, TIPS-Barclays Gbl Infl Linked US TIPS Index, Short-Term Bonds-Ibbotson 1 Yr Treasury Const Mty Index, Interm-Term Bonds-Barclays Interm-Term Govt/Credit Index, Foreign Bonds-JPM GBI Global Ex US Hdg, Global REITs-S&P Global REIT Index, Commodities-DJ UBS Commodity Index.
Past performance is historical and does not guarantee or indicate future results. Index returns assume reinvestment of all distributions and unlike mutual funds, do not reflect fees or expenses. It is not possible to invest directly in an index. This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.