Market Overview | Second Quarter 2015

As the second quarter came to an end, investors were barraged with troubling news, ranging from Greece’s default to Puerto Rico’s debt woes to China’s market retreat. Volatility jumped, but in the end, the S&P 500 eked out a 0.3% increase, marking its tenth quarterly advance in a row. Domestic small-cap and overseas stocks also produced fractional gains. All retreated in June on the news of the Greek debt standoff, erasing more significant advances from earlier in the quarter.

In the ongoing Greek debt crisis, the country defaulted on a payment due to the International Monetary Fund (IMF), shut down its banks and scheduled a referendum on austerity for the first weekend in July. That shook equity markets and prompted a flight to safety in the form of U.S. Treasuries and German Bunds. The demand helped bonds recover some of the losses from earlier in the quarter as rates rose (bond prices move inversely to yields). By quarter end, the 10-year Treasury note was yielding 2.35%, up from 1.94% on March 31. The Barclays Aggregate bond benchmark lost 1.7%. Weak June employment numbers left some doubt as to the timing of future Fed rate hikes, and corporate earnings rose only 0.8% in the first quarter.

Q215 Market Overview Returns

There was little differentiation in domestic equity performance this quarter; the Russell 2000 Index of small-cap stocks edged up 0.4%. While value and growth stocks had similar results in large cap, growth (+2.0%) continued to outpace value (-1.2%) in small cap. Within the S&P 500, Health Care (+2.8%) and Consumer Discretionary (+1.9%) stocks were the leaders, as they were in the first quarter, and utilities brought up the rear with a -5.8% return in the rising rate environment.

International stocks also had slightly positive returns. Developed-country stocks rose 0.6% in US$ terms, but had a 1.8% loss in local currencies. The dollar fell against most currencies during the quarter, boosting returns for U.S. investors overseas.
Emerging markets rose 0.8% (US$). China posted a 6.2% gain for the quarter, but entered bear market territory on the last day of June after falling 22% from its mid-month high, which was achieved after a sharp rally in the first part of the year.

Q215 World Asset Classes

High-yield bonds, which are less sensitive to interest rate moves, managed to turn in a flat quarter. Municipal bonds also gave back less than their taxable counterparts, falling just 0.5%. Puerto Rico’s governor announced at the end of the month that the commonwealth would be unable to pay its approximately $72 billion in debt outstanding. Bonds overseas also sold off during the quarter, with the German 10-year bond yield closing at 0.77%, up from 0.05% in mid-April. The Barclays Global Aggregate ex-U.S. Index (Unhedged) had a 0.8% decline, and unhedged emerging-markets bonds fell 1.0%.

The events of the quarter underscored some important investment lessons.
The situations in Greece and Puerto Rico remind us again that risk and return are related. There is no free lunch in investing, and the higher yields that may have attracted investors also reflected tenuous fiscal situations. Solid credit analysis is essential, and diversification is key — diversified, global exposure mitigates the fallout from events like this in any one country and allows investors to continue on the path to achieving their financial goals. A broadly diversified portfolio stood up quite well in a quarter that saw both a rise in interest rates and financial upheaval in pockets of the world.

 

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.
Martha Post
Martha Post

CFA | Principal, Chief Operating Officer

Martha Post, CFA, is a Principal and the Chief Operating Officer for Hewins Financial Advisors, based in Redwood City, CA. Martha oversees Hewins' operations and client service activities and also serves as a member of its Investment Committee, with nearly 30 years of experience in investment management, research and analysis.

No Comments Yet

Comments are closed

Market Overview | Second Quarter 2015

time to read: 2 min