Key news stories
The 2nd quarter of 2013 had two distinct periods: a strong build up in late April through May followed by a strong selloff at the end of June. Fundamental data continues to plod along with consumer spending & confidence retaining strength and housing gaining ground. The two main macroeconomic stories, which have web-log pages devoted to each of them, are the change in direction of the Federal Reserve and the Prime Minister Shinzo Abe’s continued expansion of Japan’s monetary and fiscal stimulus.
The US markets markedly outperformed the rest of the world. As the Federal Reserve begins a change in tone on easing programs, promising to “taper” Quantitative Easing purchases from $80 billion to $65 billion a month, the US dollar trounces the rest of the world.
All index performance values are for the 2nd quarter of 2013.
- US Large Cap Growth - Russell 1000 Growth: 2.06%
- US Large Cap Value - Russell 1000 Value: 3.20%
- US Small Cap Growth - Russell 2000 Growth: 3.74%
- US Small Cap Value - Russell 2000 Value: 2.47%
- Developed International Markets – MSCI EAFE: -0.98%
- Emerging Markets - MSCI EM: -8.08%
One downside to the change in Federal Reserve policy is the likely impact to interest rate driven paper. After a 30 year trend of falling interest rates, there is increased speculation for a reversal of the accommodative monetary policies. This would ultimately impact high duration, interest rate driven fixed income most and, indeed, that was the primary loser of the quarter. Speculative fixed income instruments that correlate more strongly with equity, like High Yields, have outperformed.
- Barclays Aggregate Bond: -2.32%
- Bank of America/Merrill Lynch High Yield: -1.35%
- Barclays Capital US Intermediate Credit: -2.30%
- Barclays Capital US Government: -1.88%
- Barclays Capital US Gov’t/Credit Long Duration: -6.11%
- Citi World Government Bond Index (non USD): -3.44%
Notably, precious metal prices (Gold and Silver) are hitting multi-year lows on the relative and potential strength of the US dollar. Many commodities are priced in dollars widely, so any dollar strength depresses commodity values. Hedge funds may look deceptively attractive. The primary damage to the markets came in the last month of June, so Hedge Fund performance numbers coming through May are deceptively high.
- Real Estate - FTSE NAREIT All REIT: -2.13%
- Commodities - DJ UBS Commodities: -9.45%
- Inflation – Barclays US Treasury TIPS: -7.05%
- Hedge Funds – DJ Credit Suisse Hedge Fund: 3.55% (through 5/31)