Market Overview – June Gloom!
Equity markets slumped during the final 5 trading days of the quarter ending June 30th, and the US market endured its worst single day performance of 2015 on June 29th when the DJIA lost 350.33 points. Most point to the uncertainty and the media magnified headlines of Greece, China and Puerto Rico as the main culprits. To those whom have been paying attention, all this news separately would be of no surprise and almost a non-event, but when highlighted repeatedly and bolted together by the media, you have all the makings of a mini panic heading into a long holiday weekend, all the while providing undisciplined nervous participants multiple reasons to sell. The month ended in the red for both domestic and international equities, as well as all bond classes. The exception was the Russell 2000, which eked out a monthly gain of .60%. – Nothing to write home about.
Both the DJIA and the S&P 500 had sideways quarters losing (.88%) and (.23%) respectively. The NASDAQ recorded a 1.75% gain and was the best performer of the major equity indexes. The International rally that began in the first quarter came to a halt in May with a decline of (1.01%) and (.37%) in June. Overall, the US broad market has advanced 2.01% year to date, and International Developed has advanced 3.81% (however it is still negative (6.57%) on a trailing 1 year basis.)
Crude oil rallied during the quarter advancing to $59.47 from $47.60 per barrel. It is still hard to believe that just one year ago, WTI was trading at $105.37. Oddly enough, both the DJ Transports and energy stocks declined during the quarter. Go Figure. Gold was negative (-1.30%), closing at $1,171.50, down from the $1,187 price per ounce at March 31st. UPDATE: Crude sold off sharply July 6th closing down 7% in one day. As of July 7th, the closing price of oil was $52.33.
The 10 year Treasury which started the quarter with a 1.93% yield, ended the quarter with a yield of 2.34%. It now stands just below its yield one year ago of 2.53%. Consequently, the US aggregate Bond and municipal markets are nearly flat at (-.10%) and +.11% year to date. The Barcap US Aggregate Bond, Municipal Bond, and Inflation Protected Treasuries all had negative performance during the second quarter. The 30 year Treasury bond ended the quarter with a yield of 3.12% compared to 3.36% one year prior. Federal Reserve Chair Janet Yellen made the statement in late May that she expects to raise US interest rates later this year, possibly September. June’s non-farm payroll report of 223,000 jobs gained, when factored with revisions, was neither strong enough to move the Federal Reserve off historically low rates or weak enough to send panic regarding the risk of recession. The US unemployment rate fell to 5.8%; its lowest reading since early 2008. We would submit this as a good report for the US equity market in that the September rate hike most likely may be pushed back to December or even 2016 as wage growth is virtually zero.
The Greece drama is more about politics than money. During the July 5th referendum, the citizens of Greece voted “no” to the bailout terms presented by the Euro group. Greek Prime Minister Tsipras is walking a risky line by rejecting the bailout deal; however, he states Greece is not looking to clash with Europe, rather that his country is willing to negotiate, albeit with better terms. It will be interesting to see over the next week whether or not the Euro Zone will renegotiate or stand firm, possibly resulting in a “Grexit.” The prospects for Greece don’t look promising if they leave the Euro, but perhaps the Euro as a whole will be stronger after cutting ties with its weakest link. Update: A new deadline for Greece has been extended to July 12th by the Eurozone. Whatever the result, the world markets are now in a better position to digest as Eurozone leaders have already developed a contingency plan. A second default on a payment due on July 20th would seal Greece’s fate. A Greek exit could result in a bond liquidity squeeze as member countries sell sovereign debt to fund contingent liabilities – their portion of any Greek default. The ECB would then have to recapitalize after it “writes off” 89 billion in euro debt.
Markets do not like uncertainty. This “Greek drama” is now even weighing on US markets. However, things are better stateside than elsewhere globally, and the pickup in merger activity, stable profits, and increasing payrolls is evidence that the US is still the best place to be core invested.
As always, thank you for the confidence and trust that you have placed in our team.
CRA FINANCIAL LLC