Tech stocks and smaller companies posted strong growth in the second quarter, with the tech-heavy NASDAQ gaining over 6.0%, only to be bested by the small caps of the Russell 2000, which grew by almost 7.5%. The S&P 500 also closed the quarter ahead of its first-quarter closing values, rising 3.43%.
International stocks, facing headwinds of a strong US dollar, slowing economic growth, and a revival of worries over Brexit, were a disappointment as the MSCI World ex US and MSCI EM dropped 0.75% and 7.96%, respectively.
Despite strong stock performance, bond yields declined slightly, indicating cross currents of opinions about the staying power of US growth. Prices for 10-year Treasuries rose by the end of the quarter, lowering yields down by 13 basis points to 2.85%.
Crude oil prices closed the quarter at $74.25 per barrel, almost $10 per barrel higher than the previous quarter. Reflecting that, regular gasoline, which was $2.648 per gallon on March 26, climbed to $2.833 on June 25.
Without much market stress or the desire for safe havens, gold closed the quarter at roughly $1,254.20, noticeably lower than its $1,329.60 price at the end of March.
June non-farm payrolls rose by 213,000 after rising 175,000 and 244,000 in April and May, respectively. The average monthly growth in jobs for the quarter was a solid 211,000 and the unemployment rate also continued to indicate a strong jobs market, coming in at a low 4.04% in June. Over the last 12 months, payroll employment has grown by 2.4 million jobs.
While still positive, first quarter GDP estimate was revised down slightly to 2.0%, but the FOMC estimates that growth for the entire year will be 2.8%.
Inflation stirred, with the Producer Price Index (PPI) rising 0.5% in May—primarily reflecting a 4.6% jump in energy prices and modest increases in food prices. Excluding food and energy, the core rate was up only 0.1%.
In light of the solid economic data, the FOMC raised the fed funds target rate by 25 basis points to 1.75% – 2.0% at its June meeting. The Committee has indicated that two more rate hikes are possible in 2018 and up to three more in 2019.
The Institute of Supply Management (ISM) Manufacturing Index rose to 60.2% in June and the non-manufacturing index rose for the second straight month to 59.1%. Index readings above 50 are an indicator of economic expansion.
Housing numbers were mixed in May, with housing starts rising to 1,350,000 and new home sales climbing 6.7% to an annualized rate of 689,000 units. Existing home sales fell 0.4% to an adjusted annualized rate of 5.43 million units.
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