Key Takeaways:
- Stocks exhibited a good deal of volatility for the month of June
- Politics continue to dominate the headlines, but fundamentals remain strong
- The US Dollar strengthened during the month, putting pressure on international investments
As we closed the books on the first half of a volatile 2018, geopolitics continue to dominate the headlines. The market has been very headline and sentiment driven as trade tensions continue to escalate. Whether it amounts to a full-blown trade war or a series of small fights remains to be seen. The increased volatility appears to have turned some investors into traders, as we have seen seven days of the S&P500 dropping by more than 2%. Despite the higher volatility, the S&P500 gained 0.62% in June, bringing its year to date return to 2.65%.
Small caps continued to outperform large companies with the Russell 2000 up 0.72% for the month and 7.75% for the year. Growth sustained its dominance over value in large and small cap domestic equities. Consumer staples (+4.50%) and real estate (+4.44%) were the best performers in July as interest rates trended lower. Industrials (-3.31%), financials (-1.92%) and technology (-0.35%) were the only negative sectors in the market for the month. The large divergence in sector returns may lend itself to active management coming back in favor for the remainder of the year.
International investment saw negative returns in developed (-1.22%) and emerging markets (-4.15%) in June. The strong dollar coupled with the uncertainty for global trade worried investors in Brazil (-8.32%), China (-5.22%) and Japan (-2.52%). Mexico was the lone bright spot in international markets with a 9.24% gain, after a 13.67% drop in May. The volatility in emerging markets has been a complete reversal of 2017, where everything seemed to trend up.
Fixed income markets were relatively flat in June with the Bloomberg Barclays US Aggregate Bond Index posting a -0.12% loss. Corporate bonds (-0.47%) and international bonds (-0.83%) sold off while high yield (+0.40%) and TIPS (+0.40%) gained. In a widely anticipated move, the Fed increased the Federal Funds rate for the second time this year.
Commentary by:
Bill Roth, CFA
Investment Director
Sources: JPMorgan, Morningstar, Columbia Investments