All major indices were positive
- S&P 500 +8.55%
- Russell 2000 +4.29%
- MSCI EAFE +5.17%
- MSCI Emerging Markets +5.05%
- Barclays US Aggregate Bond +1.83%
- Barclays High Yield Corporate +2.74%
- Bloomberg Commodities +13.30%
- Dow Jones US Select Real Estate +11.76%
S&P 1500 and other Trends
- The only style box to meaningfully outperform was Large Growth, which represented 32% of the universe at the beginning of the quarter and 34% at the end of the quarter. (Midcap growth beat the broad average by 0.03%, the other seven style boxes underperformed)
- 35% of the gain in the market came from the five largest stocks: Apple (+12.30%), Microsoft (+15.14%), Amazon (+11.19%), Alphabet (+21.16%), and Facebook (+18.06%). These stocks contributed approximately 160 basis points to the overall market gain.
- Dividend-paying stocks were clearly out of favor. Stocks with a yield less than 0.82% had a weighted average gain of 11.29% compared to +5.16% for those yielding 0.82% or higher.
- The best performing industrial sectors were energy (+11.98%) and real estate (+11.96%). The worst by far was utilities (-0.19%) which generally trade on their dividend yield.
- Financial services was a very divided sector. Top performing industries included credit services (PayPal +20.03%, American Express +16.82%, Visa +10.58%) and companies related to investments (MSCI +27.33%, Moody’s +21.56%, Morgan Stanley +18.52%, S&P Global +16.54%, Goldman Sachs +16.45%, Charles Schwab +11.98%) while banks (both global and regional) underperformed (Citigroup -2.05%, JPMorgan Chase +2.77%, Bank of America +7.03%)
- Pharmaceuticals also saw a big sell-off, especially for those who did not manufacture COVID vaccines. Major companies included Amgen (-1.33%), Johnson & Johnson (+0.88%), and Merck (+4.27%).
- The travel and leisure industry has not yet begun to recover from the economic shutdown. Major underperforming stocks in this area include Las Vegas Sands (-13.28%), Marriott International (-7.83%), Booking Holdings (parent company of Priceline, Kayak, and OpenTable, -6.08%), Expedia (-4.89%), Carnival Corp (-0.68%), and Hilton Worldwide (-0.25%). And despite being more of a media company now, Disney’s -4.74% return is also worth mentioning.
- Success in the market was narrow, with only 537 stocks outperforming the S&P 1500 index. Stocks with began the quarter with a market cap greater than $84 billion gained 9.80% compared to +5.84% for their smaller brethren. Narrow market leadership is a bearish sign for the stock market.
- Other big market movers in either direction included Nvidia (+49.88%), Adobe (+23.20%), United Parcel Service (+22.94%), Intel (-11.74%), Verizon (-2.57%), Boeing (-5.95%), and a positive but underperforming Tesla (+1.76%).
- The three-month CPI through May was +2.35% and the 12-month number was +4.99%; neither of those levels have been seen since the summer of 2008. Despite that, the 30-year Treasury bond yield actually FELL from 2.41% on March 31 to 2.06% on June 30. The implied inflation rate drawn from the TIPS yield curve ranges from 2.26% (30 year) to 2.47% (5 year), meaning that the market expects this level of inflation to dissipate once production is restored to its pre-pandemic level.
- Despite falling long rates, short rates rose. The 2-year note went from 0.16% to 0.25% and the three-year went from 0.35% to 0.46%. The 2-10 spread is now down to 1.20% from 1.58% three months ago. A flattening yield curve is a bearish sign for the stock market.
- Oil prices surged; West Texas Intermediate went from $59.19 on March 31 to $75.80 on June 30. This gave a big boost to the currencies of exporters such as Brazil (+13.8% vs. the US$), Russia (+3.5%), and Mexico (+2.8%). The dollar’s performance vs. other major currencies was mixed but generally weak, with losses against the Canadian Dollar, Euro, British Pound, Swiss Franc, and Chinese Renminbi more than offsetting gains against the Japanese Yen and Australian and New Zealand Dollars.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
The prices of small and mid-cap stocks are generally more volatile than large cap stocks.
Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.
Investing in Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.
Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
The S&P 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The S&P 1500 is a stock market index of US stocks made by Standard & Poor's. It includes all stocks in the S&P 500, S&P 400, and S&P 600.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia.
The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
The Bloomberg Barclays U.S Corporate High-Yield Bond Index is an unmanaged market value weighted index composed of fixed-rate, publicly issued, non-investment grade debt.
The Bloomberg Commodity Index is a broadly diversified commodity price index distributed by Bloomberg Indexes
The Dow Jones U.S. Select REIT Index tracks the performance of publicly traded REITs and REIT-like securities and is designed to serve as a proxy for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate.
Investing involves risk including loss of principle.
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