Quarterly Market Update - Q2 2017 By: Gabriel PotterMBA, AIFA® 2017.07.10

Key news stories

The real world economic themes from the first quarter – new unemployment lows, strong technology, weak retail, steady monetary tightening, and a political climate with a potential for great change, but absence of new policy – have largely continued into the second quarter.  Perhaps we shouldn’t be surprised the second quarter of 2017 similarly continues the investment trends from the first quarter:  high consumer confidence, growth dominating value, large caps over small caps, international equities dominating US stocks, weak commodities, and so on.

Equities

Cyclical sectors like technology soared as innovative solutions and disruptive services have the potential to grow importance for businesses, young and old.  These trends should affect positively bolster most industries, like software providers and semiconductor manufacturers, within the sector.  Large financial firms benefitted from rising interest rates, which creates greater latitude to set advantageous lending terms, and the positive results of the most recent stress tests.

INDEX

2Q 2017

YTD 2017

US Large Cap Growth - Russell 1000 Growth

4.67%

13.99%

US Large Cap Value - Russell 1000 Value

1.34%

4.66%

US Small Cap Growth - Russell 2000 Growth

4.39%

9.97%

US Small Cap Value - Russell 2000 Value

0.67%

0.54%

Developed International Markets – MSCI EAFE

6.12%

13.81%

Emerging Markets - MSCI EM

6.27%

18.43%

 

Bonds

Traditional core US bonds continue to generate marginal gains while more aggressive, high yield credit and international fixed income, bolstered by favorable currency exchange, excel.  Long maturity fixed income continues to retain value as a partial function of higher yield payments, despite the additional duration risk.

INDEX

2Q 2017

YTD 2017

Barclays Capital US Aggregate Bond

1.45%

2.27%

Barclays Capital US Intermediate Credit

1.38%

2.54%

Barclays Capital US Government

1.17%

1.86%

Barclays Capital US Gov’t/Credit Long Duration

4.39%

6.03%

Bank of America/Merrill Lynch High Yield Master II

2.14%

4.91%

Citi World Government Bond Index (non USD)

3.81%

5.91%

 

Alternatives

Real world earnings may have stabilized for energy sector, but that doesn’t mean investors are going to reward companies with increased performance; energy, metals, mining and other natural resources all suffered during the second quarter and are each negative for the year.  Most commodities are relatively cheap, with the exception of gold, which is priced more neutrally relative to its previous 10 year trading range. Most alternative strategies have had muted performance, with equity-driven, aggressive, long/short hedge funds outperforming market neutral strategies this year thus far.

INDEX

2Q 2017

YTD 2017

Real Estate - FTSE NAREIT All REITs TR

2.40%

5.43%

Commodities – Morningstar Long Only Commodity TR

-5.01%

-9.23%

Inflation – Barclays US Treasury TIPS

-0.40%

0.85%

Hedge Funds – Deutsche Bank Hedge Fund TR USD

0.00%

0.95%

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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