U.S. equity markets continued their climb in the second quarter. Large companies, as measured by the Russell 3000, climbed 8.2%, and the Russell 2000 (small companies) gained 4.3%. Foreign equities also posted positive gains with the MSCI Emerging Markets Index up 5.1% and MSCI World ex-US (developed markets) climbing 5.6%. The S&P Global REIT (real estate) index gained an impressive 10.2%.
Despite the ongoing global economic rebound, bond yields fell slightly, with the yield on the 10-year U.S. Treasury declining to 1.46% at quarter-end. The Bloomberg Barclay Aggregate Bond Index gained 1.83% for the quarter but remains down (1.60%) for the year.
Inflation continues to grab headlines. The May Consumer Price Index report gained 0.6% for the month and rose 5.0% over the past 12 months. However, the higher impacts were concentrated in energy (up 28.5% over the past 12 months) and used cars (up 29.7% over the past 12 months). When excluding those outliers, the Federal Reserve Board is content to continue a patient approach to raising rates and tapering their stimulus-oriented bond purchases.
Crude oil continued to bounce higher as the world resumes growth, with Brent Crude closing at $75.26/bbl., up dramatically from $51.80/bbl. on January 1. Gold rose slightly to close at $1,763.20 on June 30, and the U.S. dollar weakened against a basket of global currencies.
Economic data reflected the reopening trends with a string of positive jobs reports – the most recent coming just after quarter-end and reflecting 850,000 new jobs in the U.S. Yet a long way to go remains, with over 14 million still receiving unemployment benefits and total job rolls still down some 6.8 million from pre-pandemic levels.
Manufacturing and services data likewise reflect the growth, with the June Purchasing Manufacturers Index (PMI) posting an expansionary reading of 60.6, and the Services PMI coming in at 60.1 (numbers above 50 indicate expansion). The rapid return of demand for goods and services has led to supply and worker constraints, with many companies reporting inability to source supplies and hire enough workers. The expectation is that these stresses will ease as the year progresses.
Vaccination efforts continue apace in the U.S., although not meeting earlier optimistic goals and with a significant number of Americans declining the vaccine. And much of the rest of the world lags significantly in resources to vaccinate their populations; so, as the more contagious Delta virus variant spreads, the pandemic clouds remain gathered on the horizon. While there is legitimate cause to celebrate progress, it is still too early to declare the global pandemic behind us.
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