14 Jul Monthly Market Monitor – June 2017
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Global Capital Markets
- Global capital market returns were mixed in June as global stocks and real estate posted modestly positive returns while returns on commodities and bonds were slightly negative.
- For the third quarter, global stocks, bonds and real estate earned positive returns while commodities lagged
- As displayed below, hypothetical portfolio mixes with larger allocations to stocks, which are generally considered riskier, outperformed more conservative mixes over the last one, three, and 12 months.
US Stock Markets
The broad US equity market was modestly positive in June, finishing the month up approximately 1%; US stocks finished the second quarter up 3% and are up nearly 19% over the last year.
Small caps reversed their recent trend of underperformance relative to large caps in June but finished the quarter slightly behind.
Similarly, value stocks reversed trend in June by outperforming growth stocks; however, they finished the quarter slightly behind growth stocks across the capitalization spectrum.
Over the last year, the size premium was noticeably positive; meantime, the value premia was mixed.
Non-US Stock Markets
In US dollar terms, non-US stock markets slightly trailed US markets in June; however, they outperformed for the second quarter and over the last year.
Performance in developed and emerging markets was relatively similar for the month and quarter; emerging markets noticeably outperformed over the last year, however.
Foreign small and large caps performed similarly over the last one, three, and 12 months.
Value stocks incrementally outperformed in June; however, they trailed for the quarter.
US Treasury Yield Curve
The US Treasury yield curve, which charts interest rates on US Treasury bonds with different maturity dates, shifted modestly upwards in June as rates rates incrementally increased by approximately 10 basis points across most of the yield curve.
For the second quarter, the curve flattened as short-term rates modestly increased (owing largely the recent Fed rate hike) while longer-term rates declined (due to slowing inflation and reduced expectations for fiscal stimulus in the US).
As a reminder, the primary driver of returns on high-quality, investment-grade bonds is changes in interest rates which are inversely related to bond prices (i.e., when rates go up, bond prices go down and vice versa).
Investment grade taxable US and non-US bonds (USD-hedged) posted slightly negative performance in June; however, they finished the second quarter in positive territory.
For the one- and three-month periods, long-term bonds outperformed short-term bonds owing to the flattening yield curve.
The credit premium was positive in June, the second quarter and the last year as investment-grade and high-yield credit bonds outperformed US Treasury bonds.
US Treasury Inflation Protected Securities (TIPS) modestly lagged nominal Treasury bonds during the month and for the full quarter as a result of tightening break- even inflation spreads amid declining inflation expectations.
We hope you found this market monitor update valuable. Please reach out to us with any questions you have or if you’d like to discuss working together,
Kathmere Capital Management
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.
Stock Investment Risk
Stock investing may involve risk including loss of principal.Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
Bond Investment Risk
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.
Alternative Investments Risk
Alternative strategies may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments.