The first six months of the year were characterized by strong market returns, low volatility and moderate economic growth, as investors followed the Trump administration’s first six months in office. For the second quarter of 2017, the S&P 500 returned 9.34% and the FTSE All World Ex-US Index increased 14.16%. For the month of June, the S&P 500 increased .62% and the FTSE All World Ex-Us Index was up .24%. In the remaining months of 2017, investors will be watching earnings, future interest rate hikes by the Fed, and geopolitics.
Capital Markets Review
January 1, 2017 – June 30, 2017 index returns:
S&P 500 (U.S. Large Cap): 9.3%
Russell 2000 (U.S. Small Cap): 5.0%
MSCI EAFE (Developed International Markets): 14.2%
MSCI EME (Emerging Markets): 18.6%
Barclays Capital Aggregate (U.S. Fixed Income): 2.3%
Barclays Global High Yield Index: 6.5%
Bloomberg Commodity Index: -5.3%
July is the 96th month of economic expansion, which could turn into the longest expansion on record. U.S. economic indicators remain solid, indicating slow but stable growth. Consumer confidence is high, as the Consumer Confidence Index rose from 117.6 to 118.9 in June. The latest unemployment rate was little changed at 4.4%, and total non-farm payrolls increased by 220,000. GDP increased at an annual rate of 1.4% in the first quarter, according to the third estimate by the Bureau of Economic Analysis. The ISM non-manufacturing index rose in June from 56.9 to 57.4, which is close to a two-year high and provides evidence that domestic demand increased in the second quarter.
In June, the Fed raised rates for the second time this year. We believe that due to solid economic data and the increased prospects of inflation, the Fed will continue raising rates this year. In the coming months, the Fed will also be discussing reducing the balance sheet by selling bonds, which could raise long-term interest rates.
As mentioned in prior communications, Congress and President Trump have a long list of proposed items to implement which could affect the U.S. economy; topics include reducing personal and corporate tax cuts, restricting immigration, increased spending on defense and infrastructure, and repeal and replace the affordable care act.
In 2017, the global economy is poised for its best nominal growth in 6 years. Manufacturing, valuations and yields are all strong. In Europe, growth is starting to finally accelerate and is near 2%, unemployment is low, and consumers have cheaper access to credit. As a result, consumer spending, housing and corporate investment are all up. In 2017, portfolios with international exposure have done quite well and we expect this relative trend to continue.
In the emerging markets and the Asia Pacific region, growth is stable and picking up. Consequently, this has been the best performing part of our equity portfolio in 2017. In the Asia-Pacific region, growth is continuing. Growth in China is robust as manufacturing output increased in June, despite concerns around heightened debt levels in a higher rate environment. Japan is benefiting from strong demand for exports, but personal consumption is low.
Despite recent global events like Brexit, the Syrian crisis, North Korea, terrorism in Europe and the U.S. election, volatility in the markets have been relatively low. Now that it is relatively quiet and economic news is heading in the right direction, it’s important to re-examine portfolio design. We know that over time, markets have been volatile and likely will be in the future. Volatility and market downturns can happen at any time, which is why portfolio design, asset allocation and diversification are so important and can help insulate against low returns during market downturns.
We continue to monitor the global economy and seek opportunities to invest in certain sectors and geographic regions given the current market environment. In our view, a long-term investment horizon, asset allocation, diversification and discipline remain crucial to portfolio success. If you are a client and would like further detail on these topics or anything else, please call or email us. If you are not a client, but would like more information on Callan Capital’s wealth management services, please contact us at (858) 551-3800 or www.callancapital.com.
Important Index Descriptions and Disclaimers
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
The following descriptions, while believed to be accurate, are in some cases abbreviated versions of more detailed or comprehensive definitions available from the sponsors or originators of the respective indices. Anyone interested in such further details is free to consult each such sponsor’s or originator’s website.
The past performance of an index is not a guarantee of future results. Each index reflects an unmanaged universe of securities without any deduction for advisory fees or other expenses that would reduce actual returns, as well as the reinvestment of all income and dividends. An actual investment in the securities included in the index would require an investor to incur transaction costs, which would lower the performance results. Indices are not actively managed and investors cannot invest directly in the indices.
S&P 500®: Standard & Poor’s (S&P) 500® Index. The S&P 500® Index is an unmanaged, capitalization – weighted index designed to measure the performance of the broad US economy through changes in the aggregate market value of 500 stocks representing all major industries.
Russell 2000 Index: An index measuring the performance approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States.
EAFE Index: An index created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in international index has been in existence for more than 30 years.
EME Index: An index created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in global emerging markets. It is a float-adjusted market capitalization index that consists of indices in 21 emerging economies.
Barclays Capital Aggregate Bond Index: An index maintained by Barclays Capital, which took over the index business of the now defunct Lehman Brothers, and is often used to represent investment grade bonds being traded in United States. It is an unmanaged index considered representative of fixed-rate, noninvestment-grade debt of companies in the US, developed markets and emerging markets.
Barclays Global High Yield Index: An index maintained by Barclays Capital.
Bloomberg Commodity Index: A broadly diversifiedcommodity price index distributed by Bloomberg Indexes. It tracks prices of futures contracts on physical commodities on the commodity markets. The index is designed to minimize concentration in any one commodity or sector. It currently has 22 commodity futures in seven sectors.
Nothing contained herein is intended constitutes accounting, legal, tax advice or investment recommendations, or the recommendation of or an offer to sell, or the solicitation of an offer to buy or invest in any investment product, vehicle, service or instrument. Callan Capital does not provide individual tax or legal advice. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. For more information, please refer to our most recent Form ADV Part 2A which may be found at adviserinfo.sec.gov.
Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without previous notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect to any error or omission is accepted. This information should not be relied upon by you in evaluating the merits of investing in any securities or products mentioned herein. In addition the Investor should make an independent assessment of the legal, regulatory, tax, credit and accounting and determine, together with their own professional advisers, if any of the investments mentioned herein are suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. The information presented herein is for the strict use of the recipient and it is not for dissemination to any other third parties without the explicit consent of Callan Capital LLC.