Trade threats rattle markets.

Here’s a look at what happened in the markets and economy during June, why it happened, and what it may mean for you.

What happened.

At home, markets were up in June. Small caps, measured by the S&P 600, rose by +1.13%, and large caps gained +0.62% (S&P 500). Despite the exchange of trade threats between different countries, markets weren’t unusually volatile. The S&P 500 moved by more than +/- 1% on only two days during the month. This may suggest markets didn’t react much to what was then just talk of a trade war.

The MSCI Emerging Markets Index closed down 4.15%. International developed markets did a bit better, with the MSCI EAFE Index finishing the month down 1.22%.

As interest rates ended the month higher, bonds fell slightly, with the Bloomberg Barclays Aggregate Index falling by 0.12%.

Now that we’re halfway through 2018, let’s take a quick look back at how markets have done year to date. Domestic small caps have been the big winner since Jan. 1, up +9.39%, and large caps have gained +2.65%. Returns haven’t been as good overseas. Emerging markets have fallen 6.66%, and developed markets have dropped 2.75%. So far, bonds are down by 1.62% for the year.

Why it happened.

Governments lobbed tariff threats back and forth across borders and oceans, starting at the G-7 summit in Canada in early June. Amid talk of tariffs on steel, bourbon, and Harleys, we see that not all assets are equally affected by trade. Smaller companies tend to do less business internationally than larger firms, and so small-cap stocks had a stronger month than large caps.

Likewise, emerging markets overseas have been more affected by the trade spats than developed markets. Other factors also were at play for international stocks. Worries about debt in emerging markets weakened their currencies and hurt returns.

The dollar was stronger overall for June, and the domestic economy continues to hum along. Early in the month, employment levels came in at their lowest in recent history. The Federal Reserve raised interest rates and signaled two more possible increases this year, reflecting its optimistic outlook on our economy.

What it means for you.

Your portfolio may be slightly down for June, for both stocks and bonds were down overall. However, because you have limited exposure to small-cap and, especially, emerging-market stocks, your overall returns aren’t driven by the larger swings of these riskier assets. You’re investing for the long term, so keep your sights on your goals.

Because we build your portfolio specifically for you, the more you tell us about yourself — your goals, other retirement assets, and how comfortable you are with risk — the better we can tailor your investments to your unique situation. Please log into your Financial Engines account or call one of our advisors to tell us more.

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