Commentaries

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.

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