KFA Blog

Second Quarter Market Summary

By:  Lisa Thuer - Senior Trading and Research Specialist and

Michelle Smalenberger - Director of Client Services and Financial Advisor

Dear Friends,

Among the quarter’s economic news, U.S. GDP growth—one of the primary indicators used to gauge the health of the country’s economy—was b2ap3_thumbnail_Market.jpgrevised further downwardfor the first quarter, marking the largest drop since early 2009. Expectations are for growth to rebound in the second quarter (after a very harsh winter depressed activity in the first part of the year); however, the fact remains that the economic recovery continues to be subpar. Other indicators were more positive, including continued improvements in the labor market, though wage growth is still very slow. Global monetary policy continues as a significant swing factor affecting financial markets and the trajectories for geopolitical conflicts (in Ukraine and Iraq most prominently) are a further unknown.  Private sector balance sheets continue to strengthen (reflecting the U.S. household and financial system deleveraging that has occurred since 2009). This lessens the odds of another financial crisis and is a key support for the recent increase in our estimate of fair value for the stock market as we discounted a less stressed macro environment.

For investors, though, the second quarter was positive. Larger-cap U.S. stocks were up 5.2% for the quarter and 7.0% for the year to date, after rising more than 2% in June. Smaller-company stocks again lagged as they have so far this year, though they posted a very strong 5% gain in June.  Developed international stocks rose 4.4% as the European Central Bank took further easing steps to combat the risk of long-term deflation while Japan’s Prime Minister Shinzō Abe continued his multi-pronged effort to generate healthy inflation and boost Japan’s economy.

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