It’s hard to believe that one year ago stock markets were digesting the U.K.’s Brexit vote and had just dropped 5%. That was the last time the markets experienced a downdraft to that extent. The second quarter continued the pattern of low stock market volatility and prices slowly grinding higher on the heels of improving economic data.
International stocks continued their winning streak from the first quarter into the second. On the domestic front, larger stocks did better than smaller companies and growth generally outperformed value. Most sectors posted positive returns with health care, industrials, financials and information technology performing the best. Energy and telecommunication services were the two sectors posting negative returns for the quarter (and year-to-date). Bonds marked time with stable returns during the second quarter, as markets appeared to be waiting for higher interest rates that have been stubbornly slow to materialize.
This quarter we examine the lack of volatility in stock markets, the partisan conflict that seems to pervade our nation, and its Capitol, and we look at sector changes within stock indices and how they reflect the changing U.S. economy. We also examine how living arrangements have changed for young adults and, in the process, debunk the myth of the couch surfing millennial. A look at the biggest companies in the world over time and a quick explanation of the coming qualitative tightening round out this quarter’s views.
While the market has indeed climbed the proverbial wall of worry on its way to record highs, the economy has shrugged off political turmoil both at home and abroad. Focused on improving economic fundamentals, stocks continued their steady advance. We believe, as we have for the past 59 years, that it is prudent to take profits when valuations become stretched in particular stocks or sectors and redeploy those profits in areas with greater long-term potential and less risk as we diligently strive to keep your investments in line with your long-term goals. As Mark Twain wisely observed, good judgement is the result of experience, and experience is the result of bad judgement. Our almost 60 years of experience as a trusted financial advisor to our clients convinces us that having a long-term plan in place is the key to success. If you haven’t updated your financial plan lately, we invite you to speak to your portfolio manager.