A Look Back at the Markets: Second Quarter 2016

After a tumultuous first quarter, the second quarter of 2016 was off to a pretty good start. Markets were marching along nicely (with a few spurts of volatility) until June 23, 2016: the day the U.K. voted to leave the European Union (more commonly referred to as “Brexit”). Equity markets initially reacted both strongly and negatively to the news, which cast a great deal of uncertainty on the future. However, as markets digested and adjusted to this new reality, both U.S. and emerging-markets stocks rallied, bringing the results for the quarter back into positive territory.

The S&P 500 Index, which is composed of U.S. large-company stocks, rose 2.5% in the second quarter. Value stocks (Russell 1000 Value TR: +4.6%) outperformed growth stocks (Russell 1000 Growth TR: +0.6%), and small-cap stocks (Russell 2000 TR: +3.8%) outperformed large-cap stocks.

Market Returns Q2 2016

The dollar appreciated this quarter relative to most developed- and emerging-market currencies, which created headwinds for U.S. investors overseas. Emerging-markets stocks (MSCI EM GR) eked out a +0.8% return (in US$ terms). Even prior to the Brexit vote, international-developed markets were plagued by growth concerns, and the Brexit vote exacerbated those concerns for the Eurozone region. International-developed markets stocks (MSCI EAFE NR) finished the quarter down by 1.5% in US$ terms.

On the fixed-income side, the Federal Reserve held off on raising rates again this quarter, citing weak U.S. employment numbers and concerns regarding the Brexit vote. U.S. Treasury yields declined across the board over the course of the quarter, with longer-term Treasuries performing best. Although Treasury yields in the U.S. are at record lows, they are still higher than the negative government bond yields in parts of Europe and Japan. Investment-grade corporate bonds fared well, despite the uncertainty, and the Barclays Aggregate Index of domestic investment-grade bonds (the U.S. bond market) was up by more than 2% for the quarter.

In international fixed-income, emerging-markets bonds (JPM GBI-EM Global Divers TR USD Unhedged) continued to gain this quarter, rising +3.0%. Similar to emerging equities, dollar strength created headwinds; however, these bonds are up over 14% year-to-date.

World Asset Classes Q2 2016

Buoyed by the continued rally in oil and commodity prices, high-yield bonds (BofAML US HY C Pay BB-B Constd Index: +4.6%) were one of the best-performing asset classes this quarter and year-to-date.

While the initial shock of the Brexit vote has receded, the U.K.’s departure from the European Union has far-reaching political and economic implications that are nearly impossible to predict. There may be continued volatility in the markets, as this and other events (such as our upcoming election) unfold. In the face of uncertainty, we rely on academic research into past market behavior to guide our investment approach. The evidence shows that maintaining discipline and being diversified are the keys to achieving long-term growth in a portfolio. This quarter’s results are a testament to those principles.

 

The U.S. stock market is represented by the Russell 3000 Index. Int-Term Municipal Bonds are represented by the Barclays Muni Bond Index 1-10 Yr Blend (1-12).

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Rafia Hasan
Rafia Hasan

CFA, CFP® | Director of Investments

Rafia Hasan, CFA, CFP®, is the Director of Investments for Hewins Financial Advisors, based in Chicago, IL. Rafia is a member of Hewins' Investment Committee and has a deep knowledge of the financial markets, specifically in the areas of alternative investments and private equity. She also specializes in personal financial planning and estate planning for women investors.

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A Look Back at the Markets: Second Quarter 2016

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