Quarterly Recap - 2nd Quarter 2013

U.S. equity and fixed income markets ended lower in June after the Federal Reserve policymakers signaled the central bank would begin reducing the amount of its monthly purchases "later this year" and end the stimulus program by mid-2014. Volatility mounted as investors grew concerned whether or not stimulus withdrawal was premature given still excessive unemployment, while Fed officials pledged to taper stimulus only if economic conditions warrant it. The benchmark S&P 500 lost 1.5% last month (-1.3% including dividends), ending a run of seven monthly gains, the longest winning streak since September 2009. Even so, the S&P 500 extended its year-to-date (YTD) gain to nearly 14% with a 2.9% return for the second quarter. Around $4.2 trillion has been erased from global equities since May 22nd when Fed Chairman Ben Bernanke first warned that the central bank would trim stimulus.

Smaller capitalized U.S. companies outperformed large-cap stocks as the Russell 2000 Index, a proxy of small-cap equity performance, lost 0.5% in June, rose 3.1% during the second quarter and returned 15.9% YTD. Value again edged out growth for both the month and quarter as the Russell 1000 Value Index fell 0.9% in June whereas the Russell 1000 Growth Index declined 1.9%. During the second quarter, the Russell 1000 Value Index rose 3.2%, while the Russell 1000 Growth Index gained 2.1%. Seven of the ten major sector groups declined in June with Materials (-4.3%) and Technology (-3.6%) falling the most. For the quarter, only three sectors lagged, Utilities (-2.7%), Materials (-1.8%) and Energy (-0.4%), while Financials (+7.3%), Consumer Discretionary (+6.8%) and Healthcare (+3.8%) gained the most. On a YTD basis, Healthcare has been the best performer, up 20.3%.

Developed markets outside the U.S. and Canada, as measured by the MSCI EAFE Index, widely lagged domestic indices during June (-3.5%) and on the quarter (-0.7%). Emerging markets, as measured by the MSCI Emerging Market Index, posted a 6.3% loss in June, its largest monthly loss in over a year. Emerging markets slumped 8% during the second quarter. Marred by a cash crunch, China's Shanghai Composite retreated 14% last month, leading to an 11.5% decline in the 2Q. Gold entered into official bear market territory, as prices slumped nearly 23% during the 2Q, its worst quarterly loss in at least 93 years. Crude oil futures rose 4.7% in June, while declining 1% on the quarter.

In the bond market, the Barclays U.S. Government Bond Index fell for a third straight quarter, registering a 1.9% loss during the 2Q. As bond prices retreated, yields on 10-year U.S. Treasuries surged to 2.6% from a second quarter low of 1.6% on May 1st. During May and June, 10-year yields climbed the most in nearly a decade. At the other end of the credit quality spectrum, non-investment grade corporate bonds also lost value, falling 2.6% in June and 1.4% during the quarter, according to the Barclays U.S. Corporate High Yield Index. Investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, lost 1.6% on the month and 2.3% in the quarter. The Barclays Municipals Index finished June with a 2.8% loss, and sank 3% on the quarter.

1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)
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