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Quarterly Commentary, Q2 2016

Benchmark Returns for the Period Ended June 2016

Annualized
Quarter 1 Year 5 Year 10 Year
US Treasury Bills (one month) 0.04% 0.10% 0.04% 0.91%
Barclays Capital US Gov’t/Credit Inter Bond 1.59% 4.33% 2.90% 4.48%
Standard & Poor’s 500 2.46% 3.99% 12.10% 7.42%
Russell 1000 Value (large cap value) 4.58% 2.86% 11.35% 6.13%
Russell 2000 (small cap) 3.79% -6.73% 8.35% 6.20%
Morgan Stanley Europe, Australia and Far East (EAFE) -1.46% -3.67% 4.84% 3.57%
Wilshire REIT 5.60% 22.82% 12.48% 6.99%

Quarterly Commentary

The US economy showed signs of regaining momentum during the second quarter. GDP had a noticeable step-up with a Fed estimate of 2.6% growth annualized. Retail sales and home sales also saw an increase in April and May. Fed comments indicated the economy’s long-term growth potential remains favorable. However, global considerations, previous quarter employment gains, weak productivity growth, and sluggish inflation have prompted the Fed to adopt a more cautious stance regarding interest rates.

The “Brexit” vote took many people by surprise. In the days leading up to the vote, investors seemed very confident in the outcome and pushed equity prices near record highs, only to be sideswiped the following day as global markets plummeted. The Dow and S&P 500 experienced their worst one-day loss since August 2015, and declined 3.39% and 3.59% respectively. This was the Dow’s eighth-largest point loss ever. However, the U.K. accounts for less than 3% of the revenue for S&P 500 companies and less than 4% of U.S. exports and imports, so the overall long-term effects on the U.S. are likely to be small.

Despite persistent volatility, domestic equities managed to post gains for the quarter. The Dow and S&P 500 partially recovered from their Brexit dip, gaining 2.53% and 2.46% respectively. REITs continued their strong performance with a positive return of 5.6%. Domestic Large Value stocks showed solid performance with the Russell 1000 Value Index posting a 4.58% gain. Small Cap stocks closed out the quarter with gains of 3.79% as represented by the Russell 2000 index. The yield on the 10-year Treasury note continued its downward trend and finished the quarter at 1.51%.

Emerging markets were able to uphold last quarter’s robust performance with the MSCI Emerging Markets Index gaining 0.66%. However, other international markets represented by the EAFE index did not fare as well, posting a loss of 1.46%.

There is always something causing uncertainty in equity investing and this quarter was no exception. Trying to consistently predict these events and how markets will react is historically a losing proposition. The Brits have a famous saying that can be applied to long-term investing, “Keep calm and carry on.”

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.