Posted by Matthew Wolniewicz, Chief Revenue Officer, fi360 Inc. on July 25, 2016
United States equities ended the second quarter with modest gains despite weakening economic data and the increased volatility. This volatility was caused by the June 23rd Brexit vote. The immediate fall-out from the vote was nasty. For the following two days, we saw massive spikes in volatility and a large drawdown in global markets. However, the markets bounced-back and rallied the final week of the quarter. As a result, many asset classes finished close to their pre-Brexit level. The full impact of the vote to leave will not be fully known for years. But it is important to note that the UK accounts for just 4% of global GDP and .09% of the world population.
The S&P 500 gained 2.46% in the second quarter and is up 3.85% YTD, while the Dow Jones Industrial Average was up 2.07% in the quarter and is +4.31% YTD. The tech heavy Nasdaq Composite was down .056% for the quarter and is -3.29% YTD. Small-cap companies (Russell 2000 was up 3.79% in the quarter) outperformed large and mid-cap, and value outperformed growth.
Energy was the top performing sector in the quarter finishing up 11.6%, driven by crude oil prices rising 19.2% during the quarter, and natural gas increasing 31.0%. With a flight to safety during the quarter, telecommunications ended up 7.1% and utilities rose 6.8%. However, information technology fell 2.8% and consumer discretionary lost 0.9%. Over a rolling 12 month period, utilities are up 31.5%, followed by telecommunications at +25.1% and consumer staples up 18.7%.
Fixed income in the United States was positive across all asset classes. The Federal Reserve Bank left rates unchanged during its June meeting, which was not much of a surprise given the unemployment data and the Brexit vote. The Barclays US Aggregate Index rose 2.21% for the quarter, municipal bonds were +2.6%, corporate bonds rose 3.6% and high-yield corporate bonds gained 5.5%.
International markets were negative overall for the second quarter as the MSCI EAFE fell 1.46% and is down 4.42% YTD. However, emerging markets continued their strong performance for the year and the MSCI Emerging Market Index was up .66% in the quarter and +6.41% YTD. Surprisingly, the MSCI Europe Index rose 1.2% for the quarter (in local currency) but remains down 3.7% YTD.
In the international fixed income markets, the Barclays Global Aggregate was up 2.9% in the quarter and 9.0% YTD. However, the balance of the year should be interesting. For the first time in history Germany’s benchmark 10-year note actually entered negative yield and ended the quarter at -0.13%.
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