Market Volatility in the Wake of Brexit

Financial market volatility continued during the second quarter primarily driven by the surprising outcome to the U.K. Brexit vote. For the quarter, the S&P 500 gained 2.46 percent, bringing the year-to-date return to 3.84 percent. Smaller stocks, as measured by the Russell 2000 Index, managed to break into positive territory for the year-to-date with a return of 2.22 percent. The NASDAQ Composite Index, however, continued to struggle with a decline of 2.66 percent. Higher yielding stocks continued to perform the best with the S&P utilities and telecom sectors up approximately 20 percent year to date, their best start since at least 1990. Emerging market stocks, as measured by the MSCI Emerging Markets Index, increased only slightly in the quarter, up 0.81 percent, but they are still up 6.67 percent for the year.

Bonds, as measured by the Barclays U.S. Aggregate Bond Index, had another strong quarter, returning 2.21 percent, bringing the year-to-date total to 5.31 percent. Credit-sensitive areas continued to perform well with emerging-market debt, as measured by the JPMorgan Emerging Markets Bond Index Global, returning 11.55 percent and high-yield bonds returned 9.74 percent for the year. California muni bonds, as measured by the Barclays California Municipal Bond Index, performed well and are up 4.33 percent for the year. At the risk of sounding very repetitive, the 10-year U.S. Treasury note fell once again during the quarter from 1.77 percent down to 1.47 percent.

Many of the trends we witnessed in the first quarter continued into the second quarter. Investors lowered their expectations for global growth rates slightly, at least in the short term, driven by the Brexit vote causing global yields to decline once again...

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