Quarterly Market Review – Q2 2017

This report features world capital market performance and a timeline of events for the past quarter. It begins with a global overview, then features the returns of stock and bond asset classes in the US and international markets.  The report also illustrates the impact of globally diversified portfolios.

 

Market Summary

Index Returns

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citi WGBI ex USA 1−30 Years [Hedged to USD]). The S&P data are provided by Standard & Poor’s Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2017, all rights reserved. Bloomberg Barclays data provided by Bloomberg. Citi fixed income indices copyright 2017 by Citigroup.

 

World Stock Market Performance

MSCI All Country World Index with selected headlines from Q2 2017

These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news.

Graph Source: MSCI ACWI Index [net div.]. MSCI data © MSCI 2017, all rights reserved.  It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.

World Stock Market Performance

MSCI All Country World Index with selected headlines from past 12 months

World Asset Classes

Second Quarter 2017 Index Returns (%)

Looking at broad market indices, non-US developed markets and emerging markets recorded similar returns, outperforming the US during the quarter.

The value effect was negative in the US, non-US, and emerging markets. Small caps outperformed large caps in non-US developed markets but underperformed in the US and emerging markets.

US Stocks

Second Quarter 2017 Index Returns

The broad US equity market posted positive returns for the quarter but underperformed both non-US developed and emerging markets.

Value underperformed growth indices in the US across all size ranges.

Small caps in the US underperformed large caps.

International Developed Stocks

Second Quarter 2017 Index Returns

In US dollar terms, developed markets outperformed    the US equity market and had similar performance to emerging markets indices during the quarter.

Looking at broad market indices, the value effect        was negative across all size ranges in non-US  developed markets.

Small caps outperformed large caps in non-US developed markets.

 

Emerging Markets Stocks

Second Quarter 2017 Index Returns

In US dollar terms, emerging markets indices outperformed the US and recorded similar performance  to developed markets outside the US.

Looking at broad market indices, the value effect was negative across all size ranges in emerging markets.

Small caps underperformed large caps in emerging markets.

Fixed Income

Second Quarter 2017 Index Return

Interest rates were mixed across the US fixed income market during the second quarter. The yield on the 5-year Treasury note decreased 4 basis points (bps) to 1.89%. The yield on the 10-year Treasury note decreased 9 bps to 2.31%. The 30-year Treasury bond yield decreased 18 bps to finish at 2.84%.

The yield on the 1-year Treasury bill rose 21 bps to 1.24%, and the 2-year Treasury note yield rose 11 bps to 1.38%. The yield on the 3-month Treasury bill climbed 27 bps to 1.03%, while the 6-month Treasury bill yield increased 23 bps to 1.14%.

In terms of total returns, short-term corporate bonds gained 0.59% and intermediate corporates gained 1.49%.

Short-term municipal bonds gained 0.56%, while intermediate-term municipal bonds returned 1.97%. Revenue bonds gained 2.19%, outperforming general obligation bonds by 39 bps.

Impact of Diversification

Second Quarter 2017 Index Return

These portfolios illustrate the performance of different global stock/bond mixes and highlight the benefits of diversification. Mixes with larger allocations to stocks are considered riskier but have higher expected returns over time.

 


1. In US dollars MSCI developed markets country indices (net dividends). MSCI data © MSCI 2017, all rights reserved.

2. In US Dollars.  US Small Cap is the Russell 2000 Index. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related ot the Russell Indexes.  International Small Cap is the MSCI World ex USA Small Cap Index (gross dividends).  MSCI data copyright MSCI 2017, all rights reserved.

Adapted from “Investment Shock Absorbers,” Outside the Flags, February 2017.  Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.  All expressions of opinion are subject to change.  This information is intended for educational purposes, and it is not to be construed as an offer, soliciation, recommendation, or endorsement of any particular security, products, or services. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.

Tags: , , , , , , , ,