July 2010

Global equity markets continued their recent pattern of strong moves within a narrow range. Having fallen sharply in May and June, the stock market reversed course and advanced strongly in July. In part, the market responded to a series of unexpectedly strong earnings reports and improving hopes that sovereign debt fears in Europe would not result in a financial crisis. The market advanced in spite of generally soft economic reports, which raised concerns that the economic recovery of the past several quarters may be abating. The S&P 500 index returned +7.01% for the month. The Mid-cap 400 index performed similarly, at +6.91%, and the Small-cap 600 index lagged a bit, returning +6.34%. Value and growth were not far apart, though value did a bit better in the small-cap range. [Index returns: Standard and Poors]

Global equity markets also advanced during July. The MSCI Barra EAFE international equity index ended the month with a return of +4.64% in local currencies. As fears regarding the sovereign debt situation in the Mediterranean economies continued to ease, the euro strengthened as well — the US dollar fell to $1.3069 per euro, from $1.2291 per euro, from at the end of June. The dollar also dropped against Sterling; at the end of July, the pound stood at $1.5714, compared to $1.4947 a month earlier. The dollar also fell against the yen, ending July at 86.43 yen, down from 88.49 yen at the end of June. The overall currency effect was a benefit for US investors, and EAFE returned +9.48% in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

The soft economic reports improved demand for US Treasuries, whose yields fell during July. The yield on the two-year US Treasury note ended the month at 0.55% (from 0.61% at the end of June). The yield on the ten-year fell to 2.94%, from 2.97% on 6/30. The bond market accordingly advanced during the month, as the Barclays Capital US Aggregate Bond index returned +1.07%. [Index returns: based on iShares pricing from Yahoo! Finance. Treasury yields: US Treasury].

SECOND QUARTER - 2010

Market participants entered April apprehensive about the length, breadth, and strength of the stock market’s recovery during the previous year, which had raised the US equity market by 75% its lows of March 2009. Would growth continue? Could corporate earnings reports due in the second half of April justify the levels the market had reached, or would they disappoint investors? What about the debt problems of Greece and other European countries, which seemed no nearer any resolution than when they first surfaced a few months earlier? Markets were firm in April, but as the quarter progressed, fears of a sovereign default in Europe increased, and the market sold off sharply in May. The selling continued in June, as a series of tepid economic reports contributed to a gathering atmosphere of nervousness regarding the durability of the economic recovery. Fears of an imminent European government default abated, but doubts about those nations’ financial stability persisted, contributing to the overall weakness of equity markets. The net result was a bad quarter for equities. The S&P 500 index lost –11.43%; (–6.65% for the year to June 30). Mid- and small-cap stocks did better; the S&P Midcap 400 returned 9.59% (–1.36% year to date), and the Small Cap 600 –8.73% for the quarter (–0.88% year to date). Value and growth were about even in the large- and mid-cap ranges, but small growth performed better than small value. [Index returns: Standard & Poors]

Global markets largely mirrored the US market, in part because of those continuing concerns about the Greece. The MSCI Barra EAFE international equity index ended the quarter with a return of –11.15% in local currencies (–7.34% year to date). The US dollar rose dramatically against the euro. At the end of June, the dollar stood at $1.229 to the euro, compared to $1.353 at the end of March. It also moved ahead to $1.4947 against the pound Sterling, from $1.5186 at the end of March. It dropped against the yen, ending June at 88.49 yen, compared to 93.40 in March. The overall currency effect was a negative for US investors, and EAFE returned –13.97% in US dollars for the quarter (–13.23% year to date). [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

The combination of economic concerns in the US and sovereign debt worries in Europe led to a sharp fall in US Treasury interest rates. The yield on the two-year US Treasury note ended the quarter at 0.61% (down from 1.02% on 3/31/10), and the yield on the ten-year ended June at 2.97%, well below its level of 3.84% on March 31. The Barclays Capital US Aggregate Bond index returned +3.49% for the quarter (+5.33% year to date). [Index returns: Barclays Capital. Treasury yields: US Treasury].

June 2010

Having settled into selling mode in May, equity investors continued to apply downward pressure on markets during most of June. The culprit this time seemed to have been a series of tepid economic reports, which contributed to a gathering atmosphere of nervousness regarding the durability of the economic recovery. At the same time, fears of an imminent default on the government debt of Greece or another European country seem to have abated, but doubts about those nations’ financial stability persist, contributing to the overall weakness of equity markets. Market volatility has also remained elevated, perhaps discouraging investors that might otherwise think about buying. Continuing to grind lower, the S&P 500 index ended June with a loss of –5.23%, bringing the result for the quarter to –11.43%. Year to date, the S&P 500 has returned –6.65%. Mid- and small-capitalization stocks did even worse in June; the S&P Midcap 400 returned –6.55% (–9.59% for the quarter and –1.36% year to date) and the Small Cap 600 –7.07% (–8.73% for the quarter, and –0.88% year to date). Growth performed somewhat better than value in all capitalization ranges for the month. [Index returns: Standard & Poors]

Global equity markets slipped during June, but stabilized relative to their very poor showing in May. The MSCI Barra EAFE international equity index ended June with a return of –2.83% (–11.15% for the quarter and –7.34% year to date) in local currencies. As fears regarding the Greek situation eased, the euro stabilized as well — the US dollar gained just a bit, to $1.2291 per euro, from $1.2369 at the end of May. The dollar dropped against Sterling; at the end of June, it stood at $1.4947, compared to $1.4497 a month earlier. The dollar also fell against the yen, ending June at 88.49 yen, down from 90.81 yen at the end of May. The overall currency effect was a benefit for US investors, and EAFE returned –1.00% (–13.97% for the quarter and –13.23% year to date) in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

Investor nervousness also seems to have driven a bit of a flight to US Treasuries, whose yields fell during June. The yield on the two-year US Treasury note ended the month at 0.61% (from 0.76% at the end of May and 1.02% on March 31). The yield on the ten-year breached 3%, falling to 2.97% (from 3.31% on 5/31 and 3.84% on 3/31). The bond market accordingly advanced during the month, as the Barclays Capital US Aggregate Bond index returned +1.57% (+3.49% for the quarter and +5.33% year too date). [Index returns: Barclays Capital. Treasury yields: US Treasury].

May 2010

The slide in global equity markets that started toward the end of April gathered pace in May. The principal issue troubling investors was the state of sovereign debt in Greece, Portugal, and other “Club Med” — Mediterranean — members of the Eurozone. Greece’s problems are the most acute of that group’s. Since Greece uses the Euro currency, a default or other major disruption in that country would inevitably spill over to other European nations, with unpredictable effects. If the contagion were severe enough, it could potentially slow or halt our own economic recovery, and as a result, global equity markets sold off sharply during May. In addition, volatility, which had been rather quiescent for the past year or so, also increased. An aggressive European policy response, led by Germany and France, calmed fears of an economic disaster, but did little to reverse the market’s decline. After grinding lower all month, the S&P 500 index ended May with a loss –7.99%, more than wiping out the gains from earlier in the year. Year to date, the S&P 500 has returned –1.50%. Mid- and small-capitalization stocks did a little better; the S&P Midcap 400 returned –7.20% (+5.55% year to date) and the Small Cap 600 –7.22% (+6.66% year to date). Value and growth were nearly equal among large-caps, but growth did better in the mid- and small-capitalization ranges. [Index returns: Standard & Poors]

Global markets also fell in response to the worries about Greece. The MSCI Barra EAFE international equity index ended May with a return of –7.39% (–4.64% year to date) in local currencies, though Europe actually did a bit better than Asia. The Greek situation continued to drive the euro lower; the US dollar strengthened to $1.2369 against that currency, from $1.3302 at the end of April. The dollar also strengthened against Sterling; at the end of May, it stood at $1.4497, substantially stronger than its $1.5303 level of a month earlier. The dollar fell against the yen, though, ending May at 90.81 yen, compared to 94.24 at the end of April. The overall currency effect was a negative for US investors, and EAFE returned –11.51% (–12.36% year to date) in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

Despite continued indications of economic improvement in the US, currency and credit fears overseas drove US interest rates lower again during May. The yield on the two-year US Treasury note ended the month at 0.76% (from 0.97% at the end of April), and the yield on the ten-year fell to 3.31% (from 3.69% on 4/30). The bond market accordingly advanced during the month, as the Barclays Capital US Aggregate Bond index returned +0.84% (+3.71% year too date). [Index returns: Barclays Capital. Treasury yields: US Treasury].

April 2010

In spite of gathering signs of strength in the recovery of the US economy, market participants entered April apprehensive about the length, breadth, and strength of the stock market’s recovery during the past year. Would economic growth continue? Could first quarter corporate earnings, reported in the second half of April, justify the levels the market had reached, or would they disappoint investors and drive the market back down? What about the debt problems of Greece and other European countries, which seemed no nearer any resolution than when they first surfaced a few months ago? Could they cause a market break? In the event, the data on the economy remained encouraging, earnings came in relatively well, and the US Federal Reserve announced the continuation of the easy monetary policy it has pursued for almost the last three years. These items all favored the markets, but toward the end of the month the simmering uncertainty over Greece’s ability to service its sovereign debt boiled over again, and the market sold off in the final week. Even after that selloff, though, the S&P 500 index gained +1.58% for the month. Mid- and small-capitalization stocks continued to do even better; the S&P Midcap 400 returned +4.26% and the Small Cap 600 +5.85%. Value out-performed growth in all capitalization ranges. [Index returns: Standard & Poors]

Global markets fell, largely in response to the worries about Greece. The MSCI Barra EAFE international equity index ended April with a return of –1.27% in local currencies. The Greek situation also affected the euro; the US dollar strengthened to $1.3302 against that currency, from $1.3526 at the end of March. The dollar was mixed against other currencies; at the end of April, it stood at $1.5308 against the pound Sterling, a bit weaker than its $1.5186 level of a month earlier. It rose a bit against the yen, ending April at 94.24 yen, compared to March’s 93.40. The overall currency effect was a negative for US investors, and EAFE returned –1.81% in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

Despite continued indications of economic improvement in the US, currency and credit fears overseas drove US interest rates lower during April. The yield on the two-year US Treasury note ended the month at 0.97% (from 1.02% at the end of March), and the yield on the ten-year fell to 3.69% (from 3.84% on 3/31. The bond market accordingly advanced during the month, as the Barclays Capital US Aggregate Bond index returned +1.04%. [Index returns: Barclays Capital. Treasury yields: US Treasury].

FIRST QUARTER - 2010

Despite generally good economic news, the US stock market failed to extend 2009’s strong advance in the opening weeks of the year. The very strength of the previous year’s rally seemed to be a factor, as were fears over the stability of the Eurozone in light of potentially serious financial problems in Greece, Portugal, and other countries. Markets were weak overall in January. They recovered most of their lost ground in February and advanced steadily in March against a backdrop of improving news on corporate earnings, merger activity, initial public offerings, consumer spending, and even employment. For the quarter, the S&P 500 index posted a gain of +5.39%. That brought the index to a level about +75% higher than the low it had reached just over a year earlier. Mid- and small-capitalization stocks did better still; the S&P Midcap 400 returned +9.09%, and the Small Cap 600 +8.61% for the first quarter. Large-cap value did a bit better than large-cap growth for the quarter, but value and growth were about even in other capitalization ranges. [Index returns: Standard & Poors]

Global markets gained in spite of those concerns about the Greece and Portugal. The MSCI Barra EAFE international equity index ended the quarter with a return of +4.29% in local currencies. The US dollar strengthened a bit against other currencies, largely because of worries about the euro and improvements in the economic picture in the US. At the end of March, the dollar stood at $1.353 to the euro, compared to $1.433 at the end of 2009. It also moved ahead to $1.5186 against the pound Sterling, from $1.6167 at the end of December. It dropped, and then rose sharply again, against the yen, ending March at 93.40 yen, compared to December’s 93.08. The overall currency effect was a negative for US investors, and EAFE returned +0.87% in US dollars for the quarter. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

US interest rates fell in the first weeks of the year, but then the combined effect of economic improvement and fiscal deficits in the US drove rates back up during March. They stayed in a fairly narrow range, though, partially because of assurances from Federal Reserve Chair Ben Bernanke that the Fed intends to keep short-term rates low for some time to come. The yield on the two-year US Treasury note ended the quarter at 1.02% (down from 1.14% on 12/31/09), and the yield on the ten-year ended March at 3.84%, nearly the same as its level of 3.85% on 12/31/09. The Barclays Capital US Aggregate Bond index returned +1.78% for the quarter. [Index returns: Barclays Capital. Treasury yields: US Treasury].

March 2010

The US stock market recovery that began in March 2009 paused for the first two months of 2010, but it resumed in March 2010. Against a backdrop of improving news on corporate earnings, merger activity, initial public offerings, consumer spending, and even employment, the market seemed to edge forward on nearly a daily basis during March. While the advance was less steady than it seemed, by the end of the month the S&P 500 index had posted a gain of +6.03% for March, bringing its return for the first quarter to +5.39%. The gain brought the index to a level about +75% higher than the low it had reached just over a year earlier. Mid- and small-capitalization stocks did better still; the S&P Midcap 400 returned +7.14% (+9.09% year to date) and the Small Cap 600 +7.78% (+8.61% year to date). Large-cap value did a bit better than large-cap growth for the quarter, but value and growth were about even in other capitalization ranges. [Index returns: Standard & Poors]

Global markets gained in spite of continued concerns about the economic health of Greece and Portugal. The MSCI Barra EAFE international equity index ended March with a return of +7.45% (+4.29% year to date) in local currencies. The US dollar strengthened a bit against other currencies, largely because of worries about the euro and improvements in the economic picture in the US. At the end of March, the dollar stood at $1.353 to the euro, from $1.366 a month earlier, and $1.433 at the end of 2009. It also moved ahead to $1.5186 against the pound Sterling, from $1.5239 at the end of February and $1.6167 at the end of December. It rose sharply against the yen, ending March at 93.40 yen, compared to February’s 88.84, and December’s 93.08. The overall currency effect was a negative for US investors, and EAFE returned +6.24% (+0.87% year to date) in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

The combined effect of economic improvement and fiscal deficits in the US drove interest rates somewhat higher during March, in spite of assurances from Federal Reserve Chair Ben Bernanke that the Fed intends to keep short-term interest rates low for some time to come. The yield on the two-year US Treasury note ended the month at 1.02% (from 0.81% at the end of February and 1.14% on 12/31/09), and the yield on the ten-year rose to 3.84% (from 3.61% on 2/28 and 3.85% on 12/31/09). The bond market accordingly gave up ground during the month, as the Barclays Capital US Aggregate Bond index returned –0.12% (+1.78% year to date). [Index returns: Barclays Capital. Treasury yields: US Treasury]

February 2010

The US stock market fell sharply toward the end of January, and the first week of February looked as though the month would deliver more of the same. Markets steadied, however, as fears of a major debt crisis in Greece abated, and Federal Reserve Chair Ben Bernanke made clear that policy-makers still expect to keep short-term US interest rates very low for an extended period. Corporate merger activity also gave the market a lift, as Warren Buffett’s Berkshire Hathaway (BRK.A and BRK.B) completed its acquisition of Burlington Northern (formerly BNI), and several other deals appeared on the horizon. For the month, the S&P 500 returned +3.10%, retracing all but –0.61% of the ground it had lost in January. Mid- and small-capitalization stocks did better still; the S&P Midcap 400 returned +5.21% (+1.83% year to date) and the Small Cap 600 +4.30% (+0.77% year to date). Growth performed a bit better than value among large- and mid-caps, while value was a little stronger in the small-cap range. [Index returns: Standard & Poors]

For a change, global equities did not quite mirror the US market, as the jitters regarding Greece — along with Portugal, Italy, and Spain — held European markets down. The MSCI Barra EAFE international equity index ended January with a return of +0.54% (–2.94% year to date) in local currencies, with the Eurozone losing –1.96% (–7.21% year to date). The US dollar also strengthened against the euro, but was mixed against other currencies. At the end of February, it stood at $1.366 to the euro, from $1.387 a month earlier. It also moved ahead to $1.5239 against the pound Sterling, from $1.6009 at the end of January. It fell against the yen, though, ending February at 88.84 yen, weaker than January’s 90.38. The overall currency effect was a negative for US investors, and EAFE returned –0.69% (–5.06% year to date) in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

US Treasury interest rates were nearly unchanged across the yield curve during February. The yield on the two-year US Treasury note ended the month at 0.81% (from 0.82% on 1/31), and the yield on the ten-year slipped to 3.61% (from 3.63% on 1/31). The bond market basically earned its coupon during the month, as the Barclays Capital US Aggregate Bond index returned +0.37% (+1.91% year to date). [Index returns: Barclays Capital. Treasury yields: US Treasury].

January 2010

The US stock market in January was unable to continue the stunning run it made from mid-March through December. It began the year with a modest advance, but lost its strength around the middle of the month. Earnings reports were generally good, but not good enough to drive further gains. At the same time, posturing in the US Senate over the reappointment of Federal Reserve Chair Ben Bernanke created jitters in the market. The Senate finally confirmed his reappointment at month’s end, with vocal critics like Jim Bunning of Kentucky capitalizing on the opportunity to cast “no” votes without real-world consequences. Troubles overseas affected the US markets too, as continued worries about the ability of governments in Greece, Ireland, and Portugal to pay their debts raised fears for the stability of the Euro. Even an unexpectedly strong GDP report — the Commerce Department estimated that real US economic output increased by 5.7% in the fourth quarter — failed to help the markets. A number of observers downplayed the report, pointing out that inventory buildup was a big component of the increase. These observers apparently think that inventories somehow don’t count, even though businesses do not build inventories that they do not believe they will be able to sell in the future. Nevertheless, the S&P 500 fell toward the end of the month, ending with a return of –3.60%. Mid- and small-capitalization stocks did slightly better; the S&P Midcap 400 returned –3.22% and the Small Cap 600 –3.38%. Value performed quite a bit better than growth in all capitalization ranges. [Index returns: Standard & Poors]

Equities’ weakness was again global. The MSCI Barra EAFE international equity index ended January with a return of –3.45% in local currencies. The US dollar was mixed against other currencies. At the end of January, it stood at 90.38 yen, weaker than December’s 93.08. It ended at $1.3870 to the euro, sharply stronger than the $1.4332 level of a month earlier. The dollar edged ahead to $1.6009 against the pound Sterling, from $1.6167 on December 31. The overall currency effect was a negative for US investors, and EAFE returned –4.41% in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release]

US Treasury interest rates fell across the yield curve during January. The yield on the two-year US Treasury note ended the month at 0.82% (from 1.14% on 12/31), and the yield on the ten-year fell to 3.63% (from 3.85% on 12/31). The overall performance of the US bond market reflected this drop in rates — the Barclays Capital US Aggregate Bond index returned +1.53% for January. [Index returns: Barclays Capital. Treasury yields: US Treasury].

Previous Years Market Reviews

Market Reviews for 2009
Market Reviews for 2008
Market Reviews for 2007
Market Reviews for 2006

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