June was a mixed bag of investment results. Emerging market bonds (Citigroup ESBI-C) led the pack among the major asset classes, advancing 1.1% last month. Commodities (DJ-UBS Commodity) were the big loser for the second straight month, shedding 5.0% in broad terms. Our passive market-value weighted mix of everything—the Global Market Index—suffered under the strain of the widespread selling. GMI fell 1.0% in June. GMI was off in May as well and so the index just had its first run of two straight monthly losses in a year.
Given the recent economic uncertainty, red ink isn’t surprising. Even so, the losses for June are modest. In fact, when we look at year-to-date returns through June 30, the tally still looks quite decent, as the table below shows. GMI, for example, is up 4.8% as of this year’s midway point. Not too shabby for a broadly diversified index over six months. In fact, it’s quite good, relative to the historical record.
As another example, consider U.S. stocks (Russell 3000), which retreated 1.8% last month. But domestic equities for the first half of 2011 are still up a respectable 6.3%. Even if the stock market stayed flat for the second half of the year, a 6.3% annual return is only moderately below the long-term average performance of roughly 9% since 1926.
Some of last month’s losses can be chalked up to gravity. REITs (MSCI REIT), for instance, gave up more than 3% in June, but this asset class is still higher on the year by more than 10%–the best showing among the major asset classes so far in 2011. Back in mid-May, I wondered if REITs were due for a correction, as implied by the evaporation of the traditional yield premium for real estate securities at the time.
Looking forward, it’s not unreasonable to expect more churning in the markets until the crowd develops more confidence about the next phase for the economic cycle. Are we in “rough patch” or is there something darker lurking? If it’s a rough patch, how will that play out in the all-important labor market? Questions, questions, as always, but the stakes are bit higher than usual.
As I’ve been discussing all week, the next big clue arrives in a week, with the release of the June employment report on July 8. The crucial question: Was the big fade in job growth in May a one-time stumble? We’ll know more in a week. Stay tuned…