The second quarter of 2017 was generally good for global investment markets with themes echoing the first quarter of the year. Global markets posted gains, led by international stocks. Large and growth-focused companies (technology and health care primarily) were the strongest performers. Bond markets stayed mildly positive and commodities were negative.
|Index (as of 6-30-2017)||2nd Qtr 2017||1 year||3 years (avg. annual)|
|S&P 500 (large U.S. stocks)||3.09%||17.90%||9.61%|
|Russell 2000 (small U.S. companies)||2.46%||24.60%||7.36%|
|MSCI EAFE (foreign developed market stocks)||6.37%||20.83%||1.61%|
|MSCI Emerging Markets (foreign stocks)||6.38%||24.17%||2.25%|
|Bloomberg Barclays U.S. Aggregate Bond||1.45%||-0.31%||2.48%|
|Morningstar Real Estate sector (REITs)||2.21%||0.29%||7.76%|
|Morningstar Conservative Blend (20% stocks)||1.65%||3.23%||2.20%|
|Morningstar Moderately Conservative Blend (40% stocks)||2.17%||7.15%||3.39%|
|Morningstar Moderate Blend (60% stocks)||2.60%||10.95%||4.16%|
|Morningstar Moderately Aggressive Blend (80% stocks)||3.23%||15.13%||4.90%|
|Morningstar Aggressive Blend (100% stocks)||3.58%||18.23%||5.48%|
Observations at mid-year:
- “Global stock markets collectively had their best opening half-year in years… All but four of the 30 major indexes representing the world’s biggest stock markets by value have risen this year, a first-half performance unmatched since 2009 … In the past 20 years, only four first-half rallies have been as widespread or better than the current.” (The Wall Street Journal June 30, 2017)
- Vanguard senior economist Andrew Patterson acknowledged on June 20 that “forecasting (the performance of the stock market) is a very humbling exercise.” However, he’s comfortable with the potential for stock market gains to persist. He suggested that U.S. stocks are at the “high side of fair value but by no means alarming” and foreign stocks trade at more compelling values.
- Through June 30, the largest decline year-to-date for the S&P 500 was 2.85%. This is unusually small. Only 14 of the past 90 years have featured no declines less than 7% at some point during the year.
What we’re watching:
- Warning signs of bull market maturity can be hard to pinpoint. Currently, many of the economic regions that contribute the most to the global economy continue to improve, more so than expected at the beginning of the year – particularly in Europe. Technology advances are keeping inflation low, and there doesn’t appear to be “irrational exuberance” of investors as cash flow into markets has not been remarkable. Will company earnings continue to grow, justifying higher stock prices and stimulating economic expansion?
- It could be that stocks are due for a “healthy correction.” Here’s David Snowball, of Mutual Fund Observer on U.S. stock valuations: “If you squint just right you can claim that they’re only at 15-year highs, otherwise you describe it as one of the three highest levels in a century.”
- The outlook for stocks is commonly mixed, depending on the data being reviewed or the perspective of the reviewer. But what should you do given unusually low volatility and relatively high prices? There may be no reason to cut back dramatically on stock weight in your portfolio. Momentum may continue to carry returns upward. But if you have known expenses in the next couple of years that you will need to cover with withdrawals from your investments, that money shouldn’t be exposed to stocks. Capturing some recent gains, reducing stock weight and rebalancing into bonds or cash reserves can bring comfort.
We will always work to evaluate your current portfolio in the context of your time horizon for needing money and your comfort and capacity for risk taking. If you have questions about your investments, please let us know.
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