Global Markets at Midyear

July 2, 2015

We are now midway through 2015, and U.S. stocks remain near where they started the year.

The S&P 500 index is up just 1.1% this year through June 30, 2015, and the DJIA is down 1.1%. Small caps, mid caps and the Nasdaq have all fared better, each gaining roughly 4%.

The big winner has been foreign stocks. The S&P 350 Europe index was up 4.8%, and the MSCI EAFE index (Europe, Australasia and Far East) was up 6.1%.

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For the month of June, however, U.S. markets led. EAFE lost over 3%, while broad U.S. indexes lost closer to 2%.

With every dip in the market, pundits banter about how the market is overdue for a 10% correction. Investors  are also bombarded by fears of Greek and Puerto Rican debt defaults and the eventual move by the Fed to incrementally normalize interest rates. But there are also a number of positive signs: Earnings continue to grow, margins are robust, inflation is low, unemployment is dramatically better and real estate is in the early stages of a pretty dramatic recovery. Innovation in tech and science has fueled advances and solid investment gains. And the U.S.-led stock market rally is expanding globally.

What’s Working

Most stock funds had losses in June, but as usual, some areas of the market held up better than others. Small caps outperformed large caps, growth led value, and U.S. markets outpaced foreign.

Among diversified funds, large- and mid-cap U.S. growth funds lead, particularly actively managed funds (just two core ETFs were highly ranked in June). Small-cap funds are the place to be among more aggressive stock funds, and the top sector funds continue to be focused on biotech and health care.

Fixed Income

Interest rates spiked early in June. The 10-year Treasury rose from 2.12% at the end of May to 2.50% by June 10, and then ended the month at 2.35%. Bonds suffered across the board. Long-term Treasuries lost over 3% while lower-quality bonds shed 1.5%. World bonds were shaken by the threat of the Greek exit from the euro and lost about 1.2%. Emerging market bonds sank 1.6%. Short-term bonds proved a relatively safe haven, but still had slightly negative returns on the month.

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