Current Thinking

2nd Quarter 2015 Economic & Market Review

Economy
Following its June meeting, the Federal Reserve (“Fed”), led by Chair Janet Yellen, left interest rates unchanged. Key data to support the decision were domestic unemployment holding steady at 5.5% and first quarter GDP estimates of -0.2%. Outside of the U.S., Greece and the European Central Bank tensions continue to mount as the former rebuffed austerity measures yet again. Cracks in China’s equity market began to emerge although the country posted positive gains for the quarter.

Equity Markets
Global equity markets produced mixed results for the second quarter of 2015 (“Q2”). The S&P 500 Index, primarily representative of domestic large-cap stocks, rose 0.3% in Q2 compared to 0.6% for the MSCI EAFE Index (representing large-cap international stocks). While U.S. midcaps (-1.6%) struggled, U.S. small-caps (+0.4%) eked out a slight gain. From an investment style perspective, growth outpaced value across the market capitalization spectrum. Emerging markets (MSCI EM Index) rose for a second consecutive quarter by posting a 0.7% gain in Q2.

Fixed-Income Markets
Bonds took a direct hit as interest rates crept up – the yield on the 10-year Treasury increased from 1.92% to 2.36% over the quarter. The Barclays Capital (“BarCap”) U.S. Aggregate Bond Index (-1.7%) faltered, but the real damage occurred at the long-end of the curve where the BarCap Long Government Index (-8.3%) and the BarCap U.S. Long Credit Index (-7.3%) fell precipitously. Cash continued to produce a yield near 0.0%.