Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Second Quarter of 2017. The excerpt is posted here for the benefit of our blog subscribers.
US Stocks Move Steadily Higher, Show Little Regard for Political Uncertainties
Despite increasing political turbulence, US stocks marched methodically higher in the second quarter, with the S&P 500 stock index rising 3.1% for the period. The strong gains, combined with robust first quarter returns, puts US stocks up 9.3% for the year. With the political storm at times seemingly growing by the day, the stock market’s orderly rise was a welcome and reassuring surprise to many investors.
The technology and healthcare sectors remained red hot and have now risen 14.3% and 16.0% respectively on the year. If you take just Facebook, Amazon, Netflix, and Google (now Alphabet)—known as the FANG stocks—and add Apple and Microsoft to the mix, the group has risen an average of 22% in 2017 and accounts for nearly one third of the S&P 500’s total return on the year. Gains in the healthcare sector have been equally impressive and seem to be driven by increasing skepticism among investors that significant healthcare reforms will be passed by Congress.
Large cap stocks continued to outperform mid and small cap stocks in the second quarter, as the Wilshire 4500 index rose 2.9%, compared to the S&P 500’s 3.1% gain. This continues a trend that began in the first quarter of the year and can be traced in part to the surge of some of the large technology firms mentioned above, which have a big impact on capitalization weighted market indices. A weak US dollar, which fell 2.3% in the second quarter, also boosted large-cap returns, as profits earned abroad translated into more US dollars for large multinational firms.
Market volatility readings hovered near all-time lows on the quarter, providing formal confirmation that markets were in fact as tranquil as they seemed. The VIX volatility index spent most of the quarter under 11, and even dipped below 10 on occasion—not too far off from its all-time closing low of 9.3.