In spite of many political twists and turns, stock and bond markets continued their winning ways in the second quarter of 2017. Stocks were led by international holdings despite troubling political headlines both in the United States and abroad. International holdings were up ______ per the MSCI World ex-USA index for the quarter. Inside the US, the S&P 500 Index (large US companies) was up ____ for the quarter, which narrowly beat the Russell 2000 (small US companies) up 2.46%.
The second quarter was filled with a lot of political headlines all across the globe, from Trump’s failed heath care reform and ambiguous tax bills to more Brexit votes and Middle East oil drama. However, the economy seems to have weathered all these headlines and continues marching steadily forward. Most notably, the US economy has shown the Federal Reserve Bank (FED) enough strength that the FED raised interest rates another 0.25% to 1.00% in mid-June. This rate increase was largely expected by the financial markets so there was very little market reaction to the move. This increase by the FED stands as a strong vote of confidence for the U.S. economy, even though we haven’t seen the targeted 2% inflation that is desired by the FED.
In other FED news, the FED has also been discussing when to stop buying the extra bonds that it bought during its Quantitative Easing days a few years ago. This is a special item to note as it would definitely decrease the demand for bonds in the market. However, it is expected that it would be a slow and gradual weaning process—but one that deserves watching due to its potential impact on the bond market.
Bond markets have shown gains in the second quarter. The Barclays Aggregate Bond index was up 1.45 %. For several months in 2017, stock and bonds have all gained in value, and while this is good for the portfolio it seems a bit unrealistic. Stock increase on optimism in the markets, while bonds typically gain on pessimism in the markets–so for both to have strong gains seems contradictory. We believe the two assets classes will diverge at some point, but we aren’t sure which will be first.
As always, a big thank you to all of our clients for entrusting us to manage your life savings! We aim to maximize your gain and minimize your loss over the life of market and economic cycles. We are constantly reminded of Warren Buffett’s quote, “Better to have return of your money than return on your money.” We wish you a happy and safe summer!!