For the second quarter of 2017, equity markets continued higher but with less strength in U.S. Equities than the previous two quarters. International Equities led the way with a very strong quarter and returns in the U.S. across all market caps were positive. Bond returns were generally low but still positive. The 10-year U.S. Treasury yield remained below 2.50% even though the Federal Reserve hiked short-term rates another 0.25% and forecasted additional rate hikes later this year.
Carrying the momentum from the post-election rally, equity markets provided positive but widely varying returns for the ﬁrst quarter of 2017. International equities outperformed, led by Emerging Markets. As investors speculated on the Fed’s interest rate decisions for March and the rest of the year, interest rates bounced around during the quarter and bonds ﬁnished ﬂat to slightly positive.
As the focus on November’s presidential election weighed on investors, equity markets were down throughout the first month of the fourth quarter. Following Donald Trump’s surprising victory, U.S. markets pivoted and the quarter ended on a much higher note, with very strong returns from small and mid-cap stocks. In comparison, international stocks experienced a much rockier path, ending the quarter marginally lower. Overall economic data was positive, and investor sentiment greatly improved once the uncertainty of the election faded. Interest rates changed dramatically during this time, causing dropped prices and negative returns in bonds.
As the third quarter began, equity markets continued to rally from the lows that followed the Brexit vote. By mid-July, volatility softened and the S&P 500 Index went 43 consecutive days without moving by more than 1.0% in either direction (for reference, the longest stretch reported in recent history was over 60 days in 2014). Markets experienced increasing choppiness throughout the remainder of the quarter, however...
Equity markets continued to exhibit heightened volatility in the second quarter of 2016, especially during June. A very weak May jobs report created market turmoil in early June, followed by substantial global market movements leading up to, and immediately after, the June 23 "Brexit" referendum vote.
On Thursday June 23, Britain held a referendum vote to determine if it should continue its membership (a vote to “Remain”) in the European Union (EU) or vote to “Leave”, a term referred to as “Brexit” (a combination of “Britain” and “Exit”). The results were very close, with 51.9% voting to Leave. The results of the vote sent shockwaves through worldwide markets on Friday. Stocks and currencies around the globe are experiencing heightened volatility due to the uncertainty of what this historic vote means going forward.
U.S. equities fell quickly and deeply into the red to start 2016, producing the worst opening 10-days of the year in history. International equities also had a poor start to the year as another plunge in oil prices, continued concerns over slowing global growth, and lingering effects of the Fed’s interest rate increase in December all contributed to the selloff in risk assets.