Global stock and bond prices broadly advanced during the first half of the year during a period absent of volatility. Investors attribute the rally’s breadth to strengthening corporate earnings, improving economies and continued support from Japanese and European central banks. Markets shrugged off repeated global terrorist incidents, while a seemingly stalled presidency and gridlocked Congress wrangled with the question of the government’s appropriate role in the US health care system. After soaring to a 14 year high right after the Trump election, the US dollar has now weakened, declining by 5.6% over the last six months against other major currencies.
The Federal Reserve raised its key interest rate on June 14th for the 3rd time in six months. The federal funds rate now sits at 1.13%. In addition, The Fed announced plans of reducing its bond hold holdings later this year which could spur long rates to rise. Despite these policy moves, the yield curve has actually been flattening over the past 6 months; although yields have risen during the last week of the quarter. For the quarter ending June 30th, the US Barclays Aggregate returned 1.45% and the Barclays Municipal bond market rose 1.96%. The ten and thirty year bond ended the quarter with yields of 2.3% and 2.83% respectively.
International developed and emerging markets outperformed US equities in the 2nd quarter with returns of just over 6%. The US broad market advanced by 2.87%. The NASDAQ market, dominated by large cap technology returned 4.22% during the quarter although it actually declined during the month of June (-.81%). Nevertheless, Amazon’s bid for Whole Foods was the biggest US equity story of the quarter as it appears that Amazon is poised to remain a disrupter of traditional brick and mortar retail space. A revival in the European stock market is being driven by loose monetary policy and growing global demand for European Exports. Eurozone GDP growth hit its second highest level since 2011 in the first quarter, at .6% beating US GDP growth of .4%. The European purchase manager’s index reached a 74 month high in June. Gold closed the quarter at $ 1,240.70 and is now 6% lower than it was just 12 months ago. Oil crossed into bear market territory before rallying the last week of the quarter and closing at $46.04 per barrel. Oil began the quarter at $50.06 per barrel. According to James Swanson, MFS Investment’s chief investment strategist, nearly 40% of this year’s gain in the S&P 500 can be linked to just four stocks. As a technical matter, narrow breadth is a cautionary sign. In the last week of the quarter it appeared that a possible rotation was under way out of some of these crowded names, which would indicate that the US market is still healthy. Until just recently, during the past six months the bond market has largely reversed course despite targeted Fed interest rate hikes. The bond market is flashing signs of lower growth and inflation. However the stock market is still advancing. Which market will ultimately prevail?
Our lineup is changing
Amanda Siegel has departed the firm primarily to spend more time raising her infant daughter. We wish her well. Anna Sadykova previously of joint firm reception, will be joining CRA as a full time employee. We are excited to have Anna on board. Gordon Shearer and Jeff Hilliard also have accepted positions in the dual advisory roles of investment advisors and financial planners. Both gentlemen will begin in September. We see a need to invest in employee capital, as our firm expands. It is imperative that we have the capacity to continue to provide the service and insight that you expect and deserve.
Wishing all a relaxing, happy and safe summer season.
CRA FINANCIAL LLC