Investment Commentary – July 8th, 2015
Market Indices as of Market Close July 8th, 2015
Dow 17,515 (-1.73% YTD)
S&P 500 2,047 (-0.59% YTD)
NASDAQ 4,910 (3.67% YTD)
10-year Treasury 2.20 % (52 week low 1.64/high 2.66)
Gold 1158 (52 week low $1,135/high $1,347)
Oil 51.80 (52 week low $48.71/high $95.80)

“Comeback Kid”

U.S. stocks advanced Thursday (as of the Market open Thurs. July 9th) on the heels of gains in Chinese and European shares, with the Dow industrials rebounding from a five-month low.
The Dow Jones Industrial Average rallied 234 points, or 1.3%, to 17743 and the S&P 500 index gained 25 points, or 1.2%, to 2072.
“The stark difference in returns so far this year should not only remind investors of the importance of time horizon, but also of the need for balance and diversification.”

With the first half of 2015 now in the books, there has clearly been a changing of the guard in global markets. After several years of double-digit returns, the S&P 500 is lagging other equity markets as the effect of lower oil prices and a stronger U.S. dollar have been too much for an improving economy to offset. On the other hand, U.S. small caps have benefitted from their domestic orientation, returning 4.8%. Outside the U.S., both emerging and developed equity markets have regained some ground this year, rising 3.1% and 5.9%, respectively, with Europe and Japan benefitting from quantitative easing and emerging markets seeing signs of stabilization.

“Investors Shun Risk”

Last week was dominated by a widespread aversion to risk, a function primarily of increasing worries over Greece, with most equity markets falling and so-called “safe haven” bonds rallying. The Dow Jones Industrial Average fell 1.21% to 17,730, the S&P 500 Index declined 1.19% to 2,076 and the tech-heavy Nasdaq Composite Index lost 1.40% to close the week at 5,009. Meanwhile, the yield on the 10-year Treasury fell from 2.48% to 2.39%, as its price correspondingly rose. Still, most of the selling was confined to last Monday following the unexpected announcement of a Greek referendum. And although volatility rose, the decline was orderly and modest relative to past incidents.

“Puerto Rico: What Happens Next With $72 Billion of Municipal Debt?”

The governor said that Puerto Rico is unable to pay its municipal debt, and proposed a moratorium on making interest or principal payments for several years. Previously, Garcia Padilla had stated that paying off the debt was important, and that Puerto Rico planned to not miss any payments. So, this was a big change in tone, and the impact was to push down farther already depressed prices of Puerto Rico’s bonds. Values on most of the island’s bond issues dropped by at least 10% after the comments.
(Affinity Asset Management has confirmed that our total exposure to Puerto Rican bonds as well as direct Greece and Illinois holdings is a negligible amount.)

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.