June Economic Outlook - Sumner Wealth Management

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Economic Outlook

 June 2015

 

 

Dear Visitor,

May Market Recap

May was another good month for the stock market, with the overall U.S. market (as defined by the Russell 3000) up over 1%. The U.S. market is higher by nearly 4% for the year, 12% for the last 12 months, and 20% per year over the last three years. We remain in a long and strong bull market. We may be entering a period of seasonal weakness for the stock market,  but  it’s  been  hard  for investors to get too cute or clever in trying to anticipate a market correction (which is due), as the market keeps hitting new highs.  May  was  a  bit  of  a  reversal from April though. Even though international stocks still have better year-to-date returns, they did slip last month. The MSCI ACWI  (ex-US)  lost  over  1%, with emerging markets (MSCI Emerging Markets Index) losing over 4%. However, on the year, these two benchmarks are still up over 7% and 5%, respectively. The  bond  market  also  slipped last month, with the Barclays Aggregate Bond Index posting a small loss. The 10-year Treasury bond  ended  the  month  with  a yield of 2.12%..   

 

Domestic Stocks Outperform International

Equity markets slipped a little bit, as concerns about Greece and U.S. economic growth put investors into a mild flight-to-quality mode. That is, domestic stocks outperformed international stocks, in large part due to a near one percent gain in the U.S. dollar. Furthermore, bonds rallied, with the yield on the U.S. Ten Year Treasury Note falling 10 basis points to 2.12 percent. 

 

Index Returns (%) 

Source:  Bloomberg

Index

YTD

1 Year

Dow Jones 30

1.05

7.74

S&P 500

2.36

9.56

Russell 2000

3.47

9.88

MSCI EAFE

6.99

-2.95

S&P GS Commodities

-0.50

-35.66

U.S. Trade-Weighted $

7.31

20.53

 

Market Performance

1Russell 3000 2S&P 500 Index 3Russell 2000 Index 4MSCI ACWI ex-U.S. Index 5MSCI EAFE Index 6iShares
MSCI Emerging Markets Index 7Barclays Capital U.S. Aggregate Bond Index 8Barclays Capital 1-3 Month U.S.
Treasury Bill Index


Stock Market

QTD

YTD

3 YR

Total U.S. Market1

+1.48%

+3.33%

+17.06%

  Domestic Large Cap Equity2

+2.06%

+3.03%

+16.93%

  Domestic Small Cap Equity3

-1.91%

+2.32%

+16.17%

International Equity4

+4.83%

+8.49%

+8.70%

  Developed International Equity5

+3.79%

+8.85%

+11.20%

  Emerging Market Equity6

+7.47%

+9.63%

+2.52%

U.S. Bonds7

-0.68%

+0.91%

+0.05%

 

Expectations for GDP Growth

While last month Monitor mentioned that first quarter GDP was expected to be revised lower, markets still struggled with economic growth in the first quarter being restated down to -0.7 percent (initially estimated at +0.2 percent). Weaker trade (hindered by a stronger U.S Dollar), tepid consumer spending (possibly due to unseasonably poor weather), declining business investment (impacted by weaker oil prices) and a smaller inventory build-up all contributed to the downward revision. However, consensus expectations remain for the economy to rebound in the second quarter. For example, a Wall Street Journal survey of more than 60 economists shows that expectations are for second quarter GDP growth to be 2.8 percent, with the third quarter projected to be 3.1 percent. In addition, next week's Institute of Supply Management (ISM) manufacturing and non-manufacturing surveys for May are expected to report solid expansionary numbers (e.g. greater than 50) and May's Non-Farm Payrolls report is expected to show healthy job creation (225,000 new jobs). Should the data come close to expectations, markets would most likely continue to believe Federal Reserve ("the Fed") Chairwoman Janet Yellen's words that "If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate".

 

Greece Takes Center Stage

Europe will be the other area of focus this month. There have been conflicting reports about the progress in negotiations between Greece and its creditors. However, investors may know soon enough, as Greece faces a 300M euro payment due to the International Monetary Fund (IMF) next Friday, and a total of 1.6B euro to the IMF in June! No surprise announcements are expected regarding rates from the European Central Bank's (ECB) meeting next Wednesday. However, should the Greek debt talks show no progress, and given that Greek bank accounts have been experiencing consistent outflows, investors may look to ECB President Mario Draghi to try to calm any market fears that may mount in the likelihood of a "Grexit". Chart #1 shows that while the spread between Greek and German ten year bonds has widened over the last six months, indicating investors concern, it has not widened to such a degree to suggest that a deal may not emerge. 

 

Welcome New Clients to Sumner Wealth Management            

 

Charlie & Michelle E.

 

Nancy M.

 

Jody & Melissa W.

 
 

To my clients, friends, and colleagues. Thank you for your continued support!  I would like to   hear your thoughts and feel free to forward this on to other individuals who could benefit from this information.

 

Sumner Wealth Management             

Mark Sumner                                         
Financial Advisor  

 

 

Our firm assist individuals, families, and businesses in proactively preparing themselves for a broad range of financial decisions and life events by utilizing a team of specialized individuals to help our clients gain income protection, financial stability, and overall peace of mind for themselves and their loved ones.  We are an Integrated,  Wealth Manager Specialists.

 

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