June market review

July 9, 2014

Shortly after the end of each month, our Chief Investment Strategist provides highlights of the market and our funds’ performance. Following is a summarized review of June —

Markets

  • Global financial markets closed the first half of 2014 with gains across most regions in June, as volatility fell sharply on improving economic growth concentrated in developed markets. US and emerging markets equities gains were strong.
  • The S&P 500 returned 2.07% for June, 5.23% in Q2 and is up 7.14% Y-T-D. The Russell 2000 Index was up 5.32% for the month, 2.05% for Q2 and up 3.19% Y-T-D. The international equity index, MSCI EAFE, was up 0.96% for the month, 4.09% for Q2 and is up 4.78% Y-T-D.
  • Emerging markets (MSCI EM), the best performing equity index for Q2, ended the month of June up 2.66%, 6.60% for Q2 and up 6.14% Y-T-D.
  • The Japanese Nikkei 225 was up 3.62% in June, 2.25% in Q2 and down -6.93% Y-T-D. This Y-T-D underperformance has been accompanied by a rise in the Yen.
  • Government bond yields increased across the curve. In June, the 10-year Treasury yield was up 5bps to 2.53%, from 2.48% in May and the 30-year Treasury yield was up 3bps to 3.36%, from 3.33% in May. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices increased in June. The Barclays Aggregate Index was up 0.05% for June, 2.04% for Q2 and 3.93% Y-T-D. The Credit Suisse Leveraged Loans Index (bank loans) was up 0.60% for June, 1.45% for Q2 and 2.74% Y-T-D.

Economic & Geopolitical Headlines

  • According to the third estimate from the Bureau of Economic Analysis, the US economy, measured by real gross domestic product (GDP), fell at an annual rate of 2.9% in the first quarter of 2014. This drop follows an annual rate increase of 3.4% in the second half of 2013. The entire decline in overall GDP in the first quarter can be accounted for by a decline in exports and a slowdown in inventory investment, two particularly volatile components of GDP.
  • The geopolitical focus shifted back to Iraq in June. Factions within Iraq have been battling with each other, destabilizing the country. Oil prices rallied but equity markets largely shrugged off this news. Tensions between China and Japan, and the Ukraine situation also continue to not be impactful as investors focused their attention instead on Central Bank decisions.
  • At the June meeting of the European Central Bank, Mario Draghi instituted a 10bps rate cut from 25bps to 15 bps and placed negative interest rates on bank deposits. He explained that these steps are intended to spur more bank-to-business lending and, ideally, create growth and eliminate the risk of deflation.
  • The Fed met in June and continued the taper, reducing another $10bn to $35bn in asset purchases per month. The market is concerned that the Fed may raise interest rates sooner than it previously stated, however, Chairwoman Yellen again confirmed that the Fed has no intention of raising rates earlier than mid-2015.
  • The ISM manufacturing index decreased 0.1 in June; U.S. PMI was at 55.3, down from 55.4 in May. Even with the slight decrease, expansion in manufacturing in the US continues. JPMorgan’s Global Manufacturing Purchasing Managers’ Index (PMI) rose to a four-month high of 52.7 in June from May’s 52.1. Global PMI numbers show that manufacturing continues to strengthen throughout the world. A reading above 50 is considered economic expansion.
  • Hiring surged again in June as the economy added 288,000 net new jobs and the unemployment rate declined 0.2 percentage points to 6.1 percent, the lowest since September 2008. It is the fifth consecutive month with job growth of at least 200,000. This is the most total jobs added in the first half of a year since 1999.
  • The number of unemployed persons decreased by 325,000 to 9.5 million. Over the year, the unemployment rate and the number of unemployed persons have declined by 1.4 percentage points and 2.3 million, respectively.
 
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