Despite some volatility, the stock market was performing reasonably well in the second quarter. That is right up until the end of the quarter when it seemed that both Greece and Puerto Rico would imminently default on their debt. The S&P 500 stock market index was up 2.7% with just a couple days until quarter end. However, after the announcement from the Greeks, the S&P finished the quarter just marginally in the black (see graph on page 2 in newsletter).
The quarter was a volatile one. Issues such as those presented by Greece and Puerto Rico, combined with continued speculation about whether the Fed will soon raise interest rates, resulted in seesaw returns. Fairly full valuation of the stock market also isn’t helping. Investors are nervous in this environment, and volatility is the usual outcome of uncertainty. We warned in our last newsletter that increased volatility was likely through at least the rest of the year, and we’ve started to see some of that. However, we expect volatility will become more dramatic before it goes away.
Investors Seek Growth
Growth stocks have performed better than value stocks recently. This is not unusual in the later stages of a bull market. When valuations are higher, and earnings growth is slowing, investors naturally look to sectors of higher growth. Technology stocks are a prime example. Revenue and earnings growth rates are relatively strong, and technology has been the best performing industry sector. In our portfolios, the momentum funds we use have generally outperformed our value funds.
Mid-cap and small-cap stocks were weaker than large-cap stocks in the second quarter, but are still up significantly more for the year-to-date period. Again, investors are looking for growth opportunities, wherever they exist, and earnings growth is generally stronger among smaller-cap companies.
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