Quarterly Market Update: 2Q 2015 By: Gabriel PotterMBA, AIFA® 2015.07.09

Key news stories

There were two big stories in the 2nd quarter:  the ongoing drama around Greece, and the stark slowdown in China.  We’ve been covering the fiasco in the Eurozone both in monthly articles and in weekly blog posts; suffice it to say that Greece, for all its sound and fury, is unlikely to have a material effect to most US (or even European) investors, who have had years to prepare for a default.  China’s slowdown will depress global GDP growth rates, but given their meteoric rise over the past few decades, a deceleration to a sustainable level of growth is hardly a reason for panic.

By comparison, US markets were comparatively unfazed by international developments.  Rather, the issues that hurt US companies were fundamentally based on poor earnings.  Just like last quarter, the earnings weakness stemmed from low oil prices and a strong dollar.


A strong dollar sounds like a good idea, but it does mean US exports are expensive relative to the rest of the world.  Large companies, which rely on foreign sources for half of their total revenue, were particularly hurt by uncompetitive prices.  As a result, international companies and smaller companies (which tend to have a greater proportion of US customers) outperformed.

All index performance values are for the 2nd quarter of 2015.

  • US Large Cap Growth - Russell 1000 Growth:  0.12%

  • US Large Cap Value - Russell 1000 Value:  0.11%

  • US Small Cap Growth - Russell 2000 Growth:  1.98%

  • US Small Cap Value - Russell 2000 Value:  -1.20%

  • Developed International Markets – MSCI EAFE:  0.62%

  • Emerging Markets - MSCI EM: 0.69%


The June 2015 Federal Reserve meeting came and went without a rate hike, although most firms still expect an increase in rates in both the September and December 2015 meetings.  With the unemployment level at 5.3%, the labor market can’t get much tighter without wage growth and inflation prompting the Fed to respond over the next 18 months.  The pressure on future interest rates clearly impacted the longest duration paper – both government and credit – roughly equally.

Conversely, the European Central Bank and Japanese Central Bank have a more accommodative monetary policy, which may limit interest rate risk for some globally inclined investors.

All index performance values are for the 2nd quarter of 2015.

  • Barclays US Aggregate Bond:  -1.68%

  • Barclays Capital US Intermediate Credit:  -0.94%

  • Barclays Capital US Government:  -1.50%

  • Barclays Capital US Gov’t/Credit Long Duration:  -7.57%

  • Bank of America/Merrill Lynch High Yield Master II:  -0.05%

  • Citi World Government Bond Index (non USD):  -1.54%


Oil and weak energy prices remain the ongoing story for the 2nd quarter.  US hydrofracking operations have not yet been pushed out of the market, despite low prices.  Moreover, a potential deal with Iran (boosting global inventory) and a slowdown in China (lowering demand) both place continued downward pressure on the price of energy, at least for the next few quarters. 

Stretched valuations for fixed-income replacements (REITS, Utilities) sparked a long anticipated sell-off.  Conversely, the depression on commodities stabilized and, in some key areas, snapped back, encouraged by the potential value of real assets. 

All index performance values are for the 2nd quarter of 2015, unless noted.

  • Real Estate - FTSE NAREIT All REITs:   -8.93%

  • Commodities – Morningstar Long Only Commodity TR:   7.18%

  • Inflation – Barclays US Treasury TIPS:  -1.06%

  • Hedge Funds – Credit Suisse Hedge Fund:  1.45% (through 5/31/2015)

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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