What Date Should Be on the 2nd Quarter Review
The overall positive returns in the stock markets connected despite the negative returns that occurred during the last week of the quarter, every bit fears of a debt default by Greece weighed on the markets. The U.S. stock market has experienced a bit of deja vu this first one-half of the year with climate factors affecting earnings, just like last twelvemonth. Other factors, such as the U.South. dollar strengthening and oil prices remaining low, accept as well dampened the enthusiasm of brusk-term market participants. Despite these headwinds, the U.S. The stock market has continued to concord its ground. Investors look for the U.S. to return to a more robust growth rate than was seen in the first two quarters, and at that place are signs that this may be doable. These same positive signs, such as a strengthening job market place and increasing wage force per unit area, are also existence closely watched past the Federal Reserve, as it attempts to go out its nada interest charge per unit policy. Originally intended to be an "boggling" measure, this electric current low interest rate policy is now viewed past many as "ordinary". Most believe that we will run across a pocket-size interest charge per unit increase later this year, and the Federal Reserve's guidance shows that future rate increases will be "information dependent", possibly even more modest than previously telegraphed. Disruption overseas may influence and delay the Fed's decision which, in turn, has implications for all markets around the globe.
The almost interesting lesson of the first one-half of the year is that diversification is back, (meaning the benefit of spreading portfolio risks across many different types of investments is over again axiomatic). We say this slightly with tongue in cheek every bit diversification "worked" in 2014, just not in a way that added to returns. Returns in 2014 were definitely differentiated and continue to be in 2015, but this time with more positive results. So far this year, fifty-fifty with the recent Greek woes, the developed international and emerging market stock indices have outpaced the South&P 500, which dominated the by few years. Below is a summary of contempo performance of some of the major marketplace indices.
U.S. Stocks: The same major themes of the by several months are nonetheless in place. The Due south&P 500 is trading at a forward valuation (Price/Earnings Ratio) of 16.four, which is in a higher place the historic average, merely not overly expensive given the depression interest rate environs. While the market place is up 205% since the lows in 2009, the earnings pic has remained positive. With the properties of a pretty strong U.Due south. economy, modest earnings, but facing some headwinds due to the potent dollar, and cost pressure due to valuations beingness above historical levels, we still experience similar U.South. stocks offer a reasonable risk/reward tradeoff. With the Federal Reserve staying fairly dovish and fundamental banks around the earth easing monetary policy, returns may keep progressing at approximately the rate of earnings growth, which we expect to exist in the mid- to depression-single digits. Of grade, as the events of the past few weeks accept reminded u.s.a., political and economic decisions past others tin can change the sentiment of investors, causing markets to exist volatile. Additionally there is always also the potential for a surprise of some sort, like the Fed raising rates faster or more than expected. 1 "change" that has occurred over the past yr, and continues to this mean solar day, is the large divergence between different sectors of the market, particularly with Energy having been a big detractor. Every bit we wait forwards, nosotros do expect continued discrepancies in growth across different sectors of the market place. Yr-to-engagement through June 30thursday, the S&P 500 ended up i.23%, while the smaller U.Southward. companies represented past the Russell 2000 ended upwards four.75%.
International Stocks: Optimism overseas has started to take root equally markets have responded to stimulus provided by central banks around the world (the European Central Bank and the Banking concern of Nihon, in particular). While almost agree that Europe and Japan have plenty of structural issues that may continue to hinder them over the long-term, these markets currently benefit from relatively attractive valuations, cheaper currencies, lower free energy costs, and an influx of inexpensive money (due to low interest rates). This environment tin can be pretty beneficial for stocks; however, the biggest "variable" in the European equation today is Greece, who is badly struggling in a negative feedback loop of negative growth, high unemployment, low revenue enhancement receipts; made fifty-fifty worse by an inadequate organization of tax collection and a huge debt. The challenges of fixing this problem are large, especially because the medicine to cure information technology is particularly bitter to most Greeks. All options they face up, including leaving the European Wedlock, are not going to be easy. There is some concern that a "Greek exit" could set a precedent for other countries that might face similar debt problems in the futurity. Still, keep in mind that Greece is a very tiny land; the pure dollar amount of this upshot is relatively pocket-size ($242B) and the European Union (Eu) is in a much ameliorate position to deal with this today than in 2011 or 2012. The existent consequence for the global financial markets is a philosophical one: if Greece exits, this undermines the European Matrimony and makes its future less sure. The EAFE Index ended the quarter up 5.53% year-to-date.
Emerging Market place Stocks: The theme of divergence is especially true in the "emerging markets" which includes less developed nations such as China, Republic of india, Brazil, Russia, Mexico and others. It should be no surprise that each of these countries has its own problems and opportunities, and companies domiciled in these countries likewise accept very different opportunities and risks. As a whole, emerging market stocks are priced very attractively, with growth rates expected to be far higher than anywhere else in the globe. We have seen positive signs thus far this twelvemonth, but markets are tempered past some fear of the U.S. raising rates and the negative effects that this tin can have on these emerging countries. That said, many (just not all) emerging countries exercise do good strongly from a recovering Europe and from lower free energy costs. The other big variable that many are watching is Chinese growth. China is trying to transition its economic system away from heavy manufacturing and export oriented and, as a outcome, will feel bumps forth the way. How well it tin can intervene to stabilize its growth is the main question. The MSCI Emerging Marketplace Index ended the quarter upward two.95% year-to-appointment.
Bonds: The Federal Reserve only controls brusk-term interest rates, but its effects can exist felt through all maturity ranges, although not equally across all bail types or maturities. We have been planning for a rate increase for a while now and are hopeful that most of the information is "priced" into the market today, simply must wait for confirmation of this when the first hike is initiated. Foreign bonds have as well experienced some volatility lately, equally economic data has been improving in many markets, but involvement rate policies from land to country are very different. The real question that everyone is focused on is less about when the Fed raises rates, but more about the path and speed of subsequent rate increases. The Fed's estimates currently are projecting a faster pace than market participants truly wait; so, if the market place is wrong, at that place could be some negative reaction as the markets adjust to that reality. The municipal market has had strengthening fundamentals, but headlines from troubled municipalities like Chicago and, most notably, Puerto Rico have tempered enthusiasm and kept yields college. Credit research is more important than always in the municipal bond market. The Barclay'south Amass bail index was downwardly, -0.x%, the Barclay's 1-three Yr. Credit finished upwardly 0.82%, and the S&P National AMT-free Muni alphabetize was downward, -0.ten%.
Diversifying Strategies: This grouping of investment managers is tasked with generating risk-adjusted returns that are differentiated from the traditional stocks and bonds in which we primarily invest. In general, the environment for Diversifying Strategies' managers is shaping upwardly to be pretty attractive as valuations are high in many asset classes (stocks and bonds), with different sectors of the market facing existent and persistent headwinds and tailwinds. Additionally, when interest rates start to increase in the U.S., the many unlike asset types will each be affected differently. Still, all of the direction styles within Diversifying Strategies involve a certain level of contrarian activity, buying things that others are selling and vice versa, and it ofttimes takes a little while for the majority opinion to shift in favor of the fundamentals. For this reason, we evaluate each of these managers based on their peer group and remain patient to see their strategies accept issue.
While U.S. politics, Greece's woes, falling oil, and a whole host of other issues currently dominate the headlines, nosotros believe that many of these risks are similar to those of the past and that the thoughtful and careful structure of a globally diversified portfolio continues to be the prudent answer. While watching intently every bit world events play out, we will stick to our guiding principles and processes in making investment decisions for our clients.
We appreciate your trust in united states as your valued partner in working towards your goals. Delight let us know if you need anything.
Zach Ivey, CFA, CFP®
Chief Investment Strategist
*Source: Blackrock/Bloomberg
This commentary is provided for information purposes merely and does not pertain to any security product or service and is not an offer or solicitation of an offering to buy or sell any product or service. Whatsoever opinions expressed are based on our interpretation of the data available to united states at the fourth dimension of the original publication of the written report. These opinions are subject to change at whatever time without notice. B ridgeworth, LLC does non undertake to suggest you of whatsoever changes in the views expressed herein. Unless otherwise stated, all data and opinions contained in this publication were obtained from sources believed to exist accurate and reliable equally of the date published or indicated and may be superseded past subsequent market events or other reasons.
Risks include, merely are not limited to, liquidity, credit quality, fluctuating prices and uncertainties of dividends, rates of return, and yield. Past performance does not guarantee future results. Investors should consult their Financial and/or Taxation Advisor before making any investment conclusion.
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