Second Quarter 2015 Market Review
The U.S. Economy rebounded from its modest decline of the first quarter that suffered from inclement weather on the East Coast, a prolonged dock strike on the West Coast, an abrupt decline in oil prices and the negative impact on exports caused by a strong dollar. The rebound seemed to return economic growth to the 2% – 2.5% range, modest by historical standards, but at a level that could prove sustainable for the longer term.
Unfortunately, a number of additional negative factors external to the U.S. began to restrict economic growth again late in the second quarter. These included a replay of the Greece fiasco, an escalation of Mid East violence, Chinese economic and stock market problems, and the fears of pending Fed interest rate increases. As a result, the S&P 500 stock index increased just 0.28% in the second quarter and only 1.23% for the first six months of the year.
Consumer Discretionary stocks increased the most (+4.78%) for the quarter and once again the Utility sector turned in the worst return at -5.78% following its first quarter decline of 5.17%. In the bond market, interest rates turned back up during the second quarter, resulting in a modest 0.62% decline for Barclays U.S. Intermediate Government/ Credit Bond Index.
As we look into the prospects for the second half of the year, we are encouraged by the improved health of the labor market and consumer balance sheets, but at the same time, believe the economy may struggle a bit over the next few months resulting in a less than perfect investment environment.
The resurgent strength of the dollar (up 15% vs. last year) and weaker oil prices (-49%) are exerting a greater than expected negative impact on corporate sales and profits. While these factors might keep the market from moving appreciably higher near term, we continue to maintain a positive outlook for both the economy and the stock market.