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AAM Viewpoints – First Half Recap: There’s No Place Like Home


No Place Like Home

The U.S. equity market was the standout performer through the first half of 2018. The S&P 500 gained 1.67% while developed international markets, measured using the MSCI EAFE Index, dropped 4.49% (USD) and the MSCI Emerging Markets Index was the worst performing regional benchmark pulling back 7.68% (USD).


Part of the pressure in emerging markets relates to the strength of the U.S. dollar. The U.S. Dollar Index jumped 4.9% in the second quarter as investors looked for attractive growth and interest rates. While the strong dollar hurt emerging markets, it provided a boost to companies that get a smaller percentage of their profits from overseas such as small-cap stocks. Small-caps, as measure by the S&P 600 Index, rose 8.41% in the second quarter, and are up 8.66% through the first half of the year.


The Growth style continued its recent strength over Value, as the S&P 500 Growth Index rose 6.55% while the S&P 500 Value Index fell 3.44%. This was led by the growth-heavy Consumer Discretionary and Information Technology Sectors which gained 10.81% and 10.17% respectively through June. Telecommunications and Consumer Staples were the worst performing Sectors, down 10.81% and 9.93%. Cyclical Sectors as a group posted an average total return of 3.80% compared to the Defensive Sectors average total return of -3.69%.


Interest rates continued to move higher in the second quarter. The yield on the 10-year U.S. Treasury note finished June at 2.86%. It began the year at 2.41%, getting as high as 3.11% in May before settling down. This move up in interest rates has put pressure on the fixed-income markets, as the Bloomberg Barclays Aggregate Bond Index was 1.62% lower than the start of the year.


Simply put, it’s been stocks over bonds, growth over value, small over large, and domestic over international. It’s hard to believe that the first six months of 2018 included a +10% correction for the S&P 500 and yet it remained a top performer (The benchmark fell 10.16% from 1/26/18 – 2/8/18.) The fiscal stimulus entering the U.S. markets via the Tax Cut and Jobs Act is just starting to materialize, and in terms of relative strength of global economies we can already see it is making an impact. The second-half of the year will certainly include its winners and losers, but so far in 2018 there has been no place like home.





















































































































































 

Price Returns



Asset Class



Q2 2018



First Half 2018



U.S. Dollar



4.94



1.88



S&P 500



2.93



1.67



Bloomberg Barclays Agg



-0.16



-1.62



MSCI EAFE (Developed Int.)



-2.18



-4.49



MSCI EM (Emerging Int.)



-8.53



-7.68



Gold



-5.27



-4.11



Commodities



-0.07



-0.86



Real Estate



8.91



-0.98



Sector



Consumer Discretionary



7.84



10.81



Consumer Staples



-2.34



-9.93



Energy



12.69



5.27



Financials



-3.58



-4.91



Healthcare



2.66



0.99



Industrials



-3.66



-5.60



Info Tech



6.75



10.17



Materials



2.05



-4.04



Real Estate



5.13



-0.96



Telecommunications



-2.33



-10.81



Utilities



2.80



-1.52



Size



S&P 500 (Large Cap)



2.93



1.67



S&P 400 (Mid Cap)



3.88



2.69



S&P 600 (Small Cap)



8.41



8.66



Style



S&P 500 Growth



4.88



6.55



S&P 500 Value



0.76



-3.44



Source: AAM, Bloomberg Data | Price Returns as of 6/30/2018 | Past performance is not indicative of future results.


 


CRN: 2018-0702-6742 R


This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.

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