Q2 2016 Economic and Market Perspective

The final days of the second quarter were marked by a decline that averaged 5.0% in U.S. markets as they reacted to the results of the historic United Kingdom referendum to exit the European Union. (Source: http://money.cnn.com/2016/06/26/investing/markets-brexit-reaction-monday/) The surprise Brexit vote sparked concerns of future economic and political uncertainty in the U.K. The negative market action lasted two days and was followed by an immediate rally recovering most of the decline by the end of the quarter.


Investors turned to gold and silver in an attempt to limit their exposure to increased market turbulence, continuing ultra-loose monetary policies, diminished U.S. rate-increase expectations, worries about global economic growth, and both U.S. and global geopolitical concerns. For this reason, gold and silver were the best performing assets in the first half of 2016 and saw gains of 26% and 38% respectively. (Source: http://www.zerohedge.com/news/2016-07-03/gold-silver-best-performing-assets-h1-2016-%E2%80%93-26-and-38)

While gold and silver increased in value, other “safe havens” such as Treasury Bills and Government Bond yields fell to their lowest levels since 2012. The 10-year and 30-year treasury yield closed the first half of 2016 at 1.49% and 2.30% respectively, showing over a 23% decrease in yield since the beginning of the year. In comparison, the dividend yield on the S&P 500 Index is 2.1% while more defensive stocks in the Telecom, Utilities and Staples sectors are yielding 3.0% on average. (Source: http://seekingalpha.com/article/3986513-q2-2016-stocks-sale)

The rush to safer investments didn’t stop the S&P 500 and Dow Jones from ending the first half of 2016 in positive territory, up 2.69% and 2.09% respectively. NASDAQ ended in negative territory, down 3.29%. (Source: finance.yahoo.com) The NASDAQ Biotechnology Index and Healthcare Sector Equity Funds are in negative territory for the first half of 2016, down 21.27% and 6.70% respectively. Biotechnology and specialty pharmaceutical companies endured scrutiny over drug costs, which could remain an issue through the U.S. Presidential election in November. (Source: finance.yahoo.com) (Source: http://news.morningstar.com/fund-category-returns/)

The strongest S&P 500 Index sectors during the second quarter were Energy and Utilities due to investor demand for dividend income, versus the weakest performance in the Technology and Consumer Discretionary sectors. Financials were hit over investor concern that a U.S. rate hike is off the table for 2016, which would not bode well for ongoing bank profitability. (Source: finance.yahoo.com)

Domestic large-cap indexes have performed well during the first half of 2016 with Large U.S. Value Equity Funds posting a 6.62% return, Large U.S. Blend Equity Funds posting a 4.83%, and Large U.S. Growth Funds posting a 0.95% return. (Source: http://news.morningstar.com/fund-category-returns/)

International Large-Cap Indexes performed poorly during the first half of 2016 with Foreign Large Value Funds posting a negative 1.11% return, Foreign Large Blend posting a negative 1.29% return, and Foreign Large Growth posting a negative 0.68% return. (Source: http://news.morningstar.com/fund-category-returns/)

Emerging Markets equities remained in negative territory for virtually all of 2015, culminating in one of the worst years for the segment in recent history. In the first half of 2016, however, the MSCI Emerging Markets Index was in the green, up 5%. The big equity winners among MSCI’s EM country indexes: Peru, up 49%, Brazil, up 44%, Colombia, up 25%, Russia, up 19%, Thailand, up 18%, and South Africa and Indonesia, both up 14%. Positive political change helped strengthen shares in Asia and Latin America, and higher oil prices boosted Russia’s economy. South Africa has fared well, with its no-growth economy expected to expand later this year. (Source: http://www.barrons.com/articles/emerging-markets-rise-5-in-first-half-of-2016-1467433650)

Our approach of active portfolio management versus attempting to be market timers is our preferred method of management, given how volatile this last quarter was. There continues to be heightened states of volatility moving forward as we closely monitor the markets on a daily basis. If you have any questions about your portfolio investments or the current state of the markets, please do not hesitate to reach out at any time.

For further information please email: Info@Nashvillepwm.com