Building on the strong performance of the first quarter, global equity markets continued to show optimism about the future. Higher corporate earnings, improved growth rates and low inflation boosted investor confidence, and the S&P 500 index gained +3.1% in the second quarter. Stocks of smaller companies, as represented by the S&P Small Cap 600 index, did less well, returning +1.7% for the three months ending in June.
International stock markets continued to outperform domestic equities with Europe leading the way. The MSCI Europe, Australasia and Far East (EAFE) index gained +6.1% in the second quarter. Emerging markets did slightly better, gaining +6.3% as they benefited from a weakening U.S. dollar.
Bonds were positive in the second quarter, with the Barclays U.S. Aggregate Bond index gaining +1.4%. Although the Federal Reserve raised rates for the second time this year, low inflation expectations kept longer-term rates on the decline for most of the quarter.
The Financial Engines perspective
The second quarter of 2017 generally brought more of the same: higher equity markets, lower bond yields and positive economic forecasts. As we saw in the first quarter, volatility remains unusually low in equity markets. However, this can change at any time based on unexpected economic or political developments, and maintaining a well-diversified portfolio continues to be a sound strategy. The second half of the year may include some surprises, so make sure you are comfortable with the level of risk in your portfolio. At Financial Engines, we continue to monitor markets to keep your portfolio on track. Have questions? Financial Engines advisors can help.
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