PMC Weekly Review - July 10, 2015
A Macro View – June Monthly Recap
Domestic equity markets suffered relatively steep losses in June after gains in each of the two previous months. The primary drivers of market action during the month were Greece’s yet-to-be-resolved status within the Eurozone and the bursting of China’s stock market bubble. After being one of the world’s best-performing markets in 2014, Chinese equities tumbled almost 17% in June on fears of overvaluation. Greece and its European Union creditors, led by Germany, played a game of “chicken” during the month as debt payment deadlines passed. Greece imposed capital controls, and a referendum as to whether to accept creditor demands for reduced pensions and other measures was handily voted down. Domestic economic data continued to chug along during the month, with employers adding 223,000 jobs during the month, in line with expectations. Average earnings remained flat, however, suggesting that while the job situation is improving, it is doing so modestly.
Within this landscape, stocks had a disappointing month in June. The S&P 500 fell by -2.4% for the month, and is now up a mere +1.2% year-to-date. The Dow Jones Industrials (DJIA) also declined -2.4% for the month. The tech-heavy Nasdaq Composite Index slumped -2.8% in May. The Russell 2000 Index of small cap stocks outperformed the Russell 1000 Index of large cap stocks, with returns of -0.8% and -2.4%, respectively. Growth stocks outperformed value stocks during the month. In terms of sector performance, the top performers in the month were consumer discretionary, consumer staples and health care, with returns of +0.7%, +0.3% and -0.5%, respectively. Materials and energy were the poorest performers, with returns of -6.6% and -6.1%, respectively. Commodities were also lower during the month, declining -1.9%. REITs also ceded ground in June, easing by -1.2%.
International equity markets fared poorly on both absolute and relative bases during June, as the situations pertaining to both Greece and China cast a pall over markets. Economically, developed markets have been improving, and stocks of those regions fared better on a relative basis. Still, the MSCI World ex-U.S. Index declined -5.1% for the month, and is now up only +4.4% year-to-date. Emerging markets got caught in the downdraft of the Chinese markets, and consequently were the world’s poorest performing during the month. The MSCI Emerging Markets Index fell by -7.7% for the month, and the MSCI EAFE Index, which measures developed markets performance, was down -4.2%. Regionally, Latin America generated the best relative performance, but yet still declined by -3.9%. China was by far the poorest performer, declining by -17% during the month.
Fixed income markets weren’t an asset class where investors could find solace in June, with most indices delivering negative total returns. Treasury losses accelerated at the beginning of the month, but reversed course as investor anxiety increased over Greece and China made the securities a safe haven. Analysts continue to believe that with the underlying resilience of the U.S. economy, the Federal Reserve will likely begin to raise interest rates in September. Within this environment, the 10-year U.S. Treasury yield ended the month at 2.34%, up 24 basis points from the 2.10% level of May 31st. Broad-based fixed-income indices were lower in June, with the Barclays U.S. Aggregate Bond Index declining -0.9% for the month. Global fixed-income markets, while negative, outperformed domestic indices, as the Barclays Global Aggregate ex-U.S. Index shed -3.0%. Intermediate-term corporate bonds were lower, as the Barclays U.S. Corporate 5-10 Year Index fell by -1.4%. The Barclays U.S. Corporate High Yield Index declined by -1.7%. Municipals were one of the only fixed-income segments gaining ground, as it delivered a +0.2% gain for June.
The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.
Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.
Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.
Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.
Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.
© 2015 Envestnet. All rights reserved.