June market review
Shortly after the end of each month, our Chief Investment Strategist David Klassen provides highlights of the market and our funds’ performance. Following is a summarized review of June —
- Global financial markets declined in June as volatility increased into month-end, as a result of uncertainty over the outcome of the Greece referendum and continued downward pressure on Chinese equities.
- US equities posted mixed returns for June; the S&P 500, which tracks domestic large cap stocks, was down 1.94% in June, but up 0.69% the quarter and up 1.23% year-to-date (YTD). The Russell 2000 Index, which tracks domestic small cap stocks, was up 0.75% in June, up 0.42% for the quarter and up 4.75% YTD.
- The international developed equity index (MSCI EAFE) was down 2.83% for the month, but still up 0.62% for the quarter and up 5.52% YTD. The emerging markets index (MSCI EM) was down 2.60% in June, but was up 0.69% for the 2nd quarter and up 2.95% YTD. The Japanese Index (Nikkei 225) was down 1.59% in June, up 5.36% for 2Q and up 15.96% YTD.
- In June, the 30-year bond yield increased 23bps to 3.11%, the 10-year increased 24bps to 2.35%, while the five-year increased by 16bps to 1.63%. Bond yields move opposite prices, so treasury prices generally declined. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
- Corporate bond prices decreased in June, with the Barclays Aggregate Index down 1.09% for June, down 1.68% for the quarter and down 0.10% YTD. The Credit Suisse Leveraged Loans Index (bank loans) was down 0.31% for June, up 0.79% for the second quarter and up 2.85% YTD.
Economic & Geopolitical Headlines
- The US economy, measured by real gross domestic product (GDP), decreased at an annual rate of 0.2% in the first quarter of 2015, following annual growth rates of 5.0% and 2.2% in the third and fourth quarters respectively in 2014.
- The Federal Reserve met in June; Chairwoman Yellen commented that conditions for a rate hike have not yet been achieved. Progress toward maximum unemployment is progressing but there are still some cyclical weaknesses in the labor market. The Committee mentioned international market and economy concerns, and again highlighted that inflation is far below its 2% objective.
- Economic activity in the manufacturing sector saw expansion in June, with a reading of 53.5 according to the Institute for Supply Management (ISM) versus expectations of 53.1. A reading above 50 is considered economic expansion.
- US job growth continues to increase. The Labor Department reported total non-farm payroll employment increased 223,000 in June. The unemployment rate declined by 0.2 percentage point to 5.3 percent in June, and the number of unemployed persons declined by 375,000 to 8.3 million. April and May payroll employment were revised down from 221,000 to 187,000, and from 280,000 to 254,000, respectively. With these revisions, employment gains in April and May combined were 60,000 lower than previously reported.