Quarterly Market Letter – 2Q 2015

Glenn300x300Slight gains in the equity markets in April and May gave way to a June retreat leaving year to date gains about where they were at the end of the 1st quarter.  Turmoil in the Eurozone led to increased volatility and a decline in the U.S. equity markets of around -2% the last month of the quarter leaving 2nd quarter gains for the S&P 500 +.28% and +1.23% for the first six months.  Developed global markets were relatively flat as well for the quarter up only +.62%, for a +5.52% gain year to date coming off of dismal performance the last few years. 

Sector performance weakened with only three sectors in the black year to date.  Health Care (+8.74%), Consumer Discretionary (+6%) and Telecom (+.61%) are positive for the year with the other seven sectors now in the red.  The worst performing sectors were Utilities (-12.32%) and Energy (-6.05%).

Although economic conditions continue to be mixed, interest rates (as measured by the 10 year Treasury bond) rose dramatically during the second quarter, from 1.92% to 2.35%.  Rates peaked near 2.50% in late May and again in late June.  The low in rates occurred at  

Year-to-date the rise was not as pronounced, with rates up from 2.18% to the 2.35% mentioned above.  Volatility continues.  For the year ended June rates are actually down slightly, peaking at 2.64% in early July 2014, falling to a low of 1.64% at the end of January 2015, and then beginning their rise into mid-2015.

Although the continuing crisis in Greece, and more recently in Puerto Rico, have caused their fair share of a flight to quality into US Treasuries, the Fed still seems to be poised to raise rates slightly at least once during 2015.  For the year-to-date period through June the market was up less than 1% at +.82% as measured by the Barclay’s Intermediate Government/Credit Index.

Economic data on the home front improved moderately in the quarter.  The jobless rate fell to a seven year low of 5.3% mainly due to folks dropping out of the workforce.  Consumers are finally beginning to open up their wallets after a year of declining energy prices.  Consumer purchases rose +.9% in May, the biggest gain since August 2009.  University of Michigan’s index of sentiment increased to 96.1 in June registering the most optimistic first half for households since 2004. Housing starts retreated -11% in May which was expected given the surge in April, but despite the pullback in May, housing continues to make progress as permits for future projects climbed to the highest level in almost eight years.  Consensus for GDP growth for the year remain modest, in the 2% camp in spite of the contraction in the 1st quarter of -.2%. 

As always, the positives in the economy can certainly be counter balanced with a number of clouds on the horizon.  We continue to expect muted returns in the mid-term from stocks and bonds given the expectation of rising rates and subdued global economic growth, but remain optimistic the forces of capitalism will prevail and the future of this great nation remains bright.

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