Equity markets posted positive performance for the quarter, led by emerging markets. This was the first quarterly period in which emerging markets outperformed developed markets since the third quarter of 2012. REITs both in the US and in developed non-US markets outperformed equities. Large cap indices outperformed small cap indices in the developed and emerging markets, including the US. In general, value outperformed growth indices, though performance was mixed within size ranges and regions.
The broad US equity market as measured by the S&P 500 gained 5.23%, with large caps outperforming small caps for the quarter. Value outperformed growth within small cap and mid cap indices. Within large caps, value and growth indices recorded similar performance.
International developed markets had an aggregate gain of 4.62% in the quarter as measured by the MSCI World ex USA Index, with large caps outperforming small cap indices. Value indices outperformed growth indices across all size segments. The US dollar depreciated relative to many of the major international developed currencies.
In a reversal from the previous quarter, emerging markets as a whole led equity returns versus developed markets, including the US. Using the MSCI Emerging Markets Index as a proxy, emerging markets gained 6.60% in the quarter. As with developed markets, large caps outperformed small cap indices for the quarter. Value indices outperformed growth indices across all size segments with the exception of mid-caps. The US dollar depreciated relative to many of the major emerging markets currencies.
Canada (10.31%) recorded the highest performance in developed markets, followed by Hong Kong (7.18%). In a reversal from the previous quarter, Italy (-1.83%) and Ireland (-8.69%) recorded some of the lowest returns in developed markets. Turkey (14.96%) and India (14.84%) led performance in emerging markets. Qatar (-3.15%) and the UAE (-.32%), recently reclassified by MSCI to the Emerging Markets IMI Index, were among the lowest performing emerging markets.
REITs again returned positive performance, outperforming broad market equity indices in the US and developed non-US markets. The S&P Global ex US REIT Index gained 9.83%. The Dow Jones US Select REIT Index gained 7.15%
Commodities finished the quarter relatively flat. The Dow Jones-UBS Commodity Index (renamed the Bloomberg Commodity Index) returned 0.08%. Nickel, the biggest gainer in the index, returned 19.22%. Its gain was most likely due to a supply constraint in the international markets. Energy commodities were modestly up for the quarter, returning 4.36%. Grain commodities had the worst quarter overall, returning -13.23%. Wheat led the decline with a -19.74% return. The Dow Jones UBS Gold Index gained 2.79%.
Interest rates across all US fixed income markets declined during the second quarter. The 10-year Treasury note ended the quarter at 2.53%, a decline of 20 basis points over the period. The 30-year Treasury bond finished with a yield of 3.34%, a decline of 22 basis points. The decline in intermediate- and long-term rates, coupled with relatively unchanged short-term rates, led to a flattening of the US Treasury yield curve. The 30-year Treasury bond returned 5.20% and continued to outpace all fixed income markets with a 13.80% return for the year. Long-term corporate bonds returned 4.40% for the quarter and 10.42% for the year, beating intermediate-term corporate bonds, which returned 1.77% and 3.49%, respectively. Municipal revenue bonds slightly outpaced municipal GO bonds by 2.83% vs. 2.19% for the quarter. Long-term municipal bonds outperformed all other areas of the curve by returning 4.11% for the period and 10.05% for the year.
In conclusion, it has definitely been a strong quarter for financial markets!
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