THE SECOND QUARTER WAS A CONTINUATION OF LOW VOLATILITY AND GRADUAL GAINS IN THE EQUITY MARKETS. The ramp in stock prices has again created two varying perspectives. Bulls point to continued economic growth and strengthening corporate profits; Bears believe the market has gone up too much, too soon, and is due for a correction.
Revenue and earnings of the S&P 500 companies have grown steadily, now three quarters in a row reaching new highs. Early reports of Q2 earnings appear to be continuing that trend. Strong consumer and small business confidence may start to wane, though, if there continue to be delays with healthcare, regulatory and other perceived pro-growth policies.
DURING THE SECOND QUARTER, INTERNATIONAL AND EMERGING MARKETS CONTINUED THEIR LEADERSHIP RETURN POSITIONS FOR THE YEAR up 5.63 and 6.27 percent respectively for the quarter. International soundly outperformed U.S. stocks which were up 3.02 percent. A 50/50 globally diversified portfolio returned 2.30 percent for the quarter and 5.93 percent for the year.
Healthcare, Industrials and Financial Services stocks led the way from a sector perspective all up over 4 percent for the quarter. The energy sector experienced a difficult sell-off, down over 7 percent for the period. Large-cap and growth companies generated the highest returns continuing their trend from the first part of the year.
To no one’s surprise, the U.S. Federal Reserve held off on raising short-term rates after two quarter point raises in the last six months and continued with language that they would raise rates at a gradual pace. The Fed also stated that they would begin to reduce their balance sheet relatively soon, presumed to be at their September meeting.
During the quarter, the US Bond Market had solid but unspectacular growth, edging up 1.45%, whereas the Global Bond Market fell 0.6 percent. Corporate bonds led the category, up almost 2.5% for the quarter. Lagging inflation expectations led to a sell-off for Inflation Protected Securities which were down 0.43 percent.
LOOKING FORWARD, we anticipate continued economic growth but also increased volatility in the markets. If revenue and earnings were not experiencing such strong growth, we would be more concerned about equity valuations.
As mentioned last quarter, we're sharing more robust PDF attachments. While you’ll notice the charts you’re accustomed to seeing with our Quarter in Review, we’ve added a few more perspectives and breakdowns of quarterly results to provide you with more detail in a way that isn’t overwhelming.
We appreciate all the positive feedback we received from the Fiduciary Rule commentary we sent out earlier this month, and will continue to provide timely articles and commentary that we believe will be educational and informative.
In fact, we have attached an enlightening article titled “Getting What You Don’t Pay For”. Over time, investment funds annual expense ratios and trading costs can have a real impact on a portfolio’s value. At Trinity, the funds we utilize from Dimensional, Vanguard and iShares provide high quality diversification at some of the lowest costs in the industry. We have found - in building client portfolios - that high quality and low cost do not have to be mutually exclusive.
Please click here to read the complete TFA Quarter in Review | 2Q 2017 .