Transcription
Q2Quarterly Market ReviewSecond Quarter 2019
Quarterly Market ReviewSecond Quarter 2019This report features world capital market performance and atimeline of events for the past quarter. It begins with a globaloverview, then features the returns of stock and bond assetclasses in the US and international markets.The report also illustrates the impact of globally diversifiedportfolios and features a quarterly topic.Overview:Market SummaryWorld Stock Market PerformanceWorld Asset ClassesUS StocksInternational Developed StocksEmerging Markets StocksSelect Country PerformanceSelect Currency Performance vs. US DollarReal Estate Investment Trusts (REITs)CommoditiesFixed IncomeGlobal Fixed Income2
Quarterly Market SummaryIndex ReturnsUS StockMarketInternationalDevelopedStocksQ2 dMarketex USUS .6%2009 Q22009 Q22009 Q22009 Q32001 Q32008 Q4-22.8%-21.2%-27.6%-36.1%-3.0%-2.7%2008 Q42008 Q42008 Q42008 Q42016 Q42015 Q2Since Jan. 2001Avg. Quarterly ReturnBestQuarterWorstQuarterPast performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]),Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged toUSD]). S&P data 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the RussellIndexes. MSCI data MSCI 2019, all rights reserved. Bloomberg Barclays data provided by Bloomberg.3
Long-Term Market SummaryIndex ReturnsUS StockMarketInternationalDevelopedStocks1 YearEmergingMarketsStocksGlobalRealEstateUS BondMarketSTOCKSGlobalBondMarketex 5 Years10 YearsPast performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]),Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged toUSD]). S&P data 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the RussellIndexes. MSCI data MSCI 2019, all rights reserved. Bloomberg Barclays data provided by Bloomberg.4
World Stock Market PerformanceMSCI All Country World Index with selected headlines from Q2 2019270260250240230220210Mar 31Apr 30“IMF Cuts 2019Global GrowthOutlook”“Global Stock RallyDefies DimmingEconomic Outlook”“US BudgetDeficit Grew15% in First Halfof Fiscal 2019”“Home-PriceGrowthSlows toLowestLevel Since2012”“US Stocks Rally toPut S&P 500, Nasdaqat New Records”May 31“US ConsumerSentiment HitsHighest Levelin 15 Years”“EurozoneEconomy Slowsas Demand forExports Stalls”“US-China TradeTalks EndWithout a Deal”“US WorkerProductivityAdvances at BestRate Since 2010”“Japan Surprises with2.1% Growth, but It’sNot All Roses”Jun 30“US Job OpeningsOutnumberUnemployed byWidest Gap Ever”“US EconomyGrew atUnrevised3.1% Rate inFirst Quarter”“S&P 500 Hits RecordClose After Fed Hintsat Interest-Rate Cut”S&P 500 PostsBest First Halfin 22 Years”These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid makinginvestment decisions based solely on the news.Graph Source: MSCI ACWI Index [net div.]. MSCI data MSCI 2019, all rights reserved.It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.5
World Stock Market PerformanceMSCI All Country World Index with selected headlines from past 12 monthsLONG TERM (2000–Q2 2019)300SHORT TERM (Q3 2018–Q2 2019)200270Last 12months10002000260200520102015250240230220210Jun 30Sep 30Mar 31Jun 30“Home-Price Growth“Existing-Home “US Indexes Close“Oil Rises Sharply on“US Job OpeningsSlows to LowestOPEC Production Cuts,Sales Sufferwith Worst YearlyOutnumberLevel Since 2012”LargestLosses SinceFalling US Stockpiles”Unemployed byAnnual Drop2008”Widest Gap Ever”in Four Years”“Fed Raises Interest Rates,“US Consumer“OECD Sees FurtherSignals One More Increase“May’s BrexitSentiment HitsSlowdown in GlobalThis Year”Deal Is RejectedHighest LevelEconomy”foraThirdTime“Midterm Electionsin 15 Years”by Lawmakers”Produce a Divided“China’s Trade“S&P 500 PostsCongress”Surplus with USBest First Half“Oil Prices Drop Sharply as OPECHits New Record”in 22 Years”Struggles to Agree on Cuts”“Nasdaq Crosses8000 Thresholdfor First Time”“US Jobless ClaimsHit Lowest Levelsince 1969”Dec 31“US Jobless ClaimsHit Lowest Levelsince 1969”These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid makinginvestment decisions based solely on the news.Graph Source: MSCI ACWI Index [net div.]. MSCI data MSCI 2019, all rights reserved.It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.6
World Asset ClassesSecond Quarter 2019 Index Returns (%)Equity markets around the globe posted positive returns for the quarter. Looking at broad market indices, US equities outperformed non-US developed andemerging markets during the quarter.Value stocks outperformed growth stocks in emerging markets but underperformed in developed markets, including the US. Small caps underperformedlarge caps in all regions.REIT indices underperformed equity market indices in both the US and non-US developed markets.S&P 500 Index4.30Russell 1000 Index4.25Russell 3000 Index4.10Russell 1000 Value Index3.84MSCI World ex USA Index (net div.)3.79Bloomberg Barclays US Aggregate Bond Index3.08MSCI All Country World ex USA Index (net div.)2.98S&P Global ex US REIT Index (net div.)2.64Russell 2000 Index2.10MSCI World ex USA Small Cap Index (net div.)1.76MSCI World ex USA Value Index (net div.)1.74Russell 2000 Value Index1.38MSCI Emerging Markets Value Index (net div.)0.97Dow Jones U.S. Select REIT Index0.82MSCI Emerging Markets Index (net div.)0.61One-Month US Treasury BillsMSCI Emerging Markets Small Cap Index (net div.)0.60-0.98Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. TheS&P data is provided by Standard & Poor's Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data MSCI 2019, allrights reserved. Dow Jones data 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P data 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. BloombergBarclays data provided by Bloomberg. Treasury bills Stocks, Bonds, Bills, and Inflation Yearbook , Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).7
US StocksSecond Quarter 2019 Index ReturnsUS equities outperformed both non-US developed andemerging markets equities.Small caps underperformed large caps in the US.Value underperformed growth in the US across largeand small cap stocks.Ranked Returns for the Quarter (%)Large Growth4.64Large Cap4.25Marketwide4.10Large Value3.84Small Growth2.75Small CapSmall ValueWorld Market Capitalization—US2.101.38Period Returns (%)Asset Class55%US Market 29.3 trillion* AnnualizedYTD1 Year3 Years**5 Years** 10 Years**Large Growth21.4911.5618.0713.3916.28Small Growth20.36-0.4914.698.6314.41Large 0210.1914.67Small Cap16.98-3.3112.307.0613.45Large Value16.248.4610.197.4613.19Small Value13.47-6.249.815.3912.40Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (Russell 1000 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap(Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCIEmerging Markets IMI Index. Russell 3000 Index is used as the proxy for the US market. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCIdata MSCI 2019, all rights reserved.8
International Developed StocksSecond Quarter 2019 Index ReturnsIn US dollar terms, developed markets stocks outside the USoutperformed emerging markets equities but underperformedthe US equity market during the quarter.Small caps underperformed large caps in non-USdeveloped markets.Value underperformed growth across large and smallcap stocks.Ranked Returns for the Quarter (%)InternationalDeveloped Market 17.9 trillion2.783.790.851.760.991.74* AnnualizedPeriod Returns (%)Asset Class34%5.76Large CapSmall CapUS currency4.50GrowthValueWorld Market Capitalization—International DevelopedLocal currencyYTD1 YearGrowth18.89Large CapSmall CapValue3 Years**5 Years**10 6.178.383.399.1910.38-1.808.540.015.62Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: Large Cap (MSCI World ex USA Index), Small Cap (MSCI World ex USA Small Cap Index), Value (MSCI World ex USA Value Index), and Growth (MSCI World ex USAGrowth Index). All index returns are net of withholding tax on dividends. World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCI World ex USA IMIIndex is used as the proxy for the International Developed market. MSCI data MSCI 2019, all rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to theRussell Indexes.9
Emerging Markets StocksSecond Quarter 2019 Index ReturnsIn US dollar terms, emerging markets underperformeddeveloped markets, including the US.Value stocks generally outperformed growth stocks.Ranked Returns for the Quarter (%)0.970.20Large Cap0.61-0.13GrowthSmall Cap12%Emerging Markets 6.2 trillion0.26-1.08-0.98Period Returns (%)Asset ClassUS currency0.54ValueSmall caps underperformed large caps.World Market Capitalization—Emerging MarketsLocal currency* AnnualizedYTD1 YearGrowth12.33-2.44Large Cap3 Years**5 Years**10 75.0410.021.034.60Small Cap6.70-5.125.460.535.86Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Market segment (index representation) as follows: Large Cap (MSCI Emerging Markets Index), Small Cap (MSCI Emerging Markets Small Cap Index), Value (MSCI Emerging Markets Value Index), and Growth (MSCIEmerging Markets Growth Index). All index returns are net of withholding tax on dividends. World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCIEmerging Markets IMI Index used as the proxy for the emerging market portion of the market. MSCI data MSCI 2019, all rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks,and copyrights related to the Russell Indexes.10
Select Country PerformanceSecond Quarter 2019 Index ReturnsIn US dollar terms, Switzerland and Germany recorded the highest country performance in developed markets, while Hong Kong and Japan posted thelowest returns for the quarter. There was a wide dispersion in returns across emerging markets. Greece recorded the highest country performance with again of 23%, while Pakistan posted the lowest performance, declining 21%.Ranked Developed Markets Returns rlandsSwedenCanadaNew raelDenmarkNorwayFinlandUKJapanHong KongRanked Emerging Markets Returns eRussiaThailandBrazilSouth AfricaPhilippinesPolandEgyptTurkeyCzech ombiaKoreaPeruUAEHungaryChinaChilePakistan .11-4.64Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Country performance based on respective indices in the MSCI World ex US IMI Index (for developed markets), MSCI USA IMI Index (for US), and MSCI Emerging Markets IMI Index. All returns in USD and net of withholdingtax on dividends. MSCI data MSCI 2019, all rights reserved. UAE and Qatar have been reclassified as emerging markets by MSCI, effective May 2014.11
Select Currency Performance vs. US DollarSecond Quarter 2019In both developed and emerging markets, currencies were mixed against the US dollar.Ranked Developed Markets (%)Ranked Emerging Markets (%)Japanese yen (JPY)2.73Canadian dollar (CAD)2.23Swiss franc (CHF)2.14Israeli new shekel (ILS)1.76Danish krone (DKK)1.44Euro (EUR)1.42Norwegian krone (NOK)1.00Hong Kong dollar (HKD)0.48Singapore dollar (SGD)0.11Swedish krona (SEK)-0.03Australian dollar (AUD)-1.21New Zealand dollar (NZD)British pound (GBP)-1.52-2.33Russian ruble (RUB)4.16Egyptian pound (EGP)3.80Thai baht (THB)3.48Czech koruna (CZK)2.96Polish zloty (PLN)2.81Philippine peso (PHP)2.49South African rand (ZAR)2.27Brazilian real (BRL)1.54Hungarian forint (HUF)1.06Peruvian sol (PEN)0.97Mexican peso (MXN)0.97Indonesian rupiah (IDR)0.80Indian rupee (INR)0.36Chilean peso (CLP)Colombian peso (COP)New Taiwan dollar (TWD)Malaysian ringgit (MYR)Korean won (KRW)0.22-0.67-0.77-1.21-1.69Chinese yuan (CNY)-2.16Turkish lira (TRY)-2.32Pakistani rupee (PKR) -11.89Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.MSCI data MSCI 2019, all rights reserved.12
Real Estate Investment Trusts (REITs)Second Quarter 2019 Index ReturnsNon-US real estate investment trusts outperformed US REITsin US dollar terms.Ranked Returns for the Quarter (%)US REITS0.82Global ex US REITSTotal Value of REIT StocksPeriod Returns (%)Asset Class42%World ex US 503 billion249 REITs(22 othercountries)2.6458%* AnnualizedYTD1 YearUS REITS16.679.753.737.6115.40Global ex US REITS14.687.784.793.629.843 Years**5 Years** 10 Years**US 684 billion95 REITsPast performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Number of REIT stocks and total value based on the two indices. All index returns are net of withholding tax on dividends. Total value of REIT stocks represented by Dow Jones US Select REIT Index and the S&P Global ex USREIT Index. Dow Jones US Select REIT Index used as proxy for the US market, and S&P Global ex US REIT Index used as proxy for the World ex US market. Dow Jones and S&P data 2019 S&P Dow Jones Indices LLC, adivision of S&P Global. All rights reserved.13
CommoditiesSecond Quarter 2019 Index ReturnsThe Bloomberg Commodity Index Total Return declined 1.19%in the second quarter of 2019.Corn and wheat led performance, returning 14.24% and13.36%, respectively.Ranked Returns for Individual Commodities (%)Corn14.24Wheat13.36CoffeeNatural gas and cotton were the worst performers, declining by16.67% and 14.72%, respectively.9.98Gold8.37Unleaded gas4.57Kansas wheat2.70Soybean meal1.41Silver0.41Soybeans-0.26Brent crude oil-1.49Soybean oil-1.77Sugar-2.37* AnnualizedNickel-2.753 Years** 5 Years**10 Years**WTI crude oilPeriod Returns (%)Asset ClassQTRYTD 1 YearCommodities-1.195.06-6.75-2.31Heating e cattle-9.45Zinc-12.45Lean hogs-14.39Cotton-14.72Natural gas-16.67Past performance is not a guarantee of future results. Index is not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.Commodities returns represent the return of the Bloomberg Commodity Total Return Index. Individual commodities are sub-index values of the Bloomberg Commodity Total Return Index. Data provided by Bloomberg.14
Fixed IncomeSecond Quarter 2019 Index ReturnsInterest rates decreased in the USTreasury fixed income market duringthe second quarter. The yield on the 5year Treasury note declined by 47basis points (bps), ending at 1.76%.The yield on the 10-year Treasury notefell by 41 bps to 2.00%. The 30-yearTreasury bond yield decreased by 29bps to finish at 2.52%.On the short end of the curve, the 1month Treasury bill yield decreased to2.18%, while the 1-year T-bill yielddecreased by 48 bps to 1.92%. The 2year T-note yield finished at 1.75%,decreasing 52 bps.In terms of total returns, short-termcorporate bonds increased by 2.09%.Intermediate-term corporate bonds hada total return of 3.13%.The total return for short-term municipalbonds was 1.12%, while intermediatemunis returned 1.98%. Revenue bondsoutperformed general obligation bonds.US Treasury Yield Curve (%)Bond Yield across Issuers 2.682.001.000.001Yr5Yr10Yr30Yr10-Year USTreasuryState AnnualizedPeriod Returns (%)Asset ClassQTRYTD1 YearBloomberg Barclays US Government Bond Index Long6.0010.9212.283 Years** 5 Years** 10 Years**1.425.686.54Bloomberg Barclays US Aggregate Bond Index3.086.117.872.312.953.90Bloomberg Barclays US TIPS Index2.866.154.842.081.763.64Bloomberg Barclays US High Yield Corporate Bond Index2.509.947.487.524.709.24Bloomberg Barclays Municipal Bond Index2.145.096.712.553.644.72FTSE World Government Bond Index 1-5 Years1.922.272.570.67-0.760.53FTSE World Government Bond Index 1-5 Years (hedged to USD)1.512.694.441.851.841.86ICE BofAML 1-Year US Treasury Note Index0.941.762.981.431.020.76ICE BofAML US 3-Month Treasury Bill Index0.641.242.311.380.870.49One basis point equals 0.01%. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with themanagement of an actual portfolio. Yield curve data from Federal Reserve. State and local bonds are from the S&P National AMT-Free Municipal Bond Index. AAA-AA Corporates represent the Bank of America Merrill LynchUS Corporates, AA-AAA rated. A-BBB Corporates represent the ICE BofAML Corporates, BBB-A rated. Bloomberg Barclays data provided by Bloomberg. US long-term bonds, bills, inflation, and fixed income factor data Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook , Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). FTSE fixed income indices 2019 FTSE Fixed Income LLC, all rightsreserved. ICE BofAML index data 2019 ICE Data Indices, LLC. S&P data 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.15
Global Fixed IncomeSecond Quarter 2019 Yield CurvesUSInterest rates in the global developedmarkets generally decreased duringthe quarter.UK4.04.03/31/20193.0Short- and intermediate-term nominalinterest rates were negative inGermany and Japan.2.01.00.0-1.03.06/30/2019Yield (%)Yield (%)Longer-term bonds generallyoutperformed shorter-term bonds inglobal developed 191Y5YYears to /30/20190.0-1.01Y30YJapan5Y10Y20YYears to MaturityOne basis point equals 0.01%. Source: ICE BofAML government yield. ICE BofAML index data 2019 ICE Data Indices, LLC.30YYield (%)5Y-45.3Yield (%)1YUS20YYears to MaturityGermanyChanges in Yields (bps) since 30YYears to Maturity16
Index performance does not reflect the expenses associated with the management of an actual portfolio. . Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Globaond Market ex US (Bloomberg Barclays Global Aggregate .
