Market Review - Second Quarter 2010
The chart of equity index returns tells the story of the second quarter markets. All major indices turned negative this quarter, erasing first quarter profits and sending year-to-date returns into the red. Meanwhile gold and treasuries rose in the second quarter, reflecting investors’ flight to defensive investments.
The Dow Jones Industrial Average ended the second quarter down 9.36% at 9,774.02, dropping below the psychological support level of 10,000 and 13% below its 2010 high, making the pullback officially a “correction”. On a positive note, the index is still up 49% from its March 9, 2009 low. The Standard and Poor’s 500 Index posted its worst quarterly performance since the final quarter of 2008 when the financial crisis was swirling. The S&P 500 fell 11.43% during the quarter with a 1% drop on the last day of June. All ten sectors in the S&P 500 were in the red for the quarter. Internationally, the MSCI EAFE International Index lost 13.97% for the quarter.
At the close of the first quarter some pundits were contemplating a possible rise in interest rates and improvements in unemployment and housing data. The second quarter started off with the Dow and S&P 500 reaching their highest levels since the Lehman Brothers’ collapse in September of 2008. We had learned of Greece’s debt p ro blems in the first quarter; however, it wasn’t until the end of April that the S&P cut Greece’s bond rating to junk status. Funds quickly moved into the safe haven of Treasuries, pushing yields lower. The Euro began to weaken, and investors feared that Europe’s spreading debt crisis might curtail a domestic recovery. On May 6th, Greece’s parliament approved an austerity bill, and the U.S experienced a “flash crash” when the Dow dropped 700 points in just eight minutes. Hopes of a “V” shaped recovery started to fade with some investors fearing the possibility of a double dip recession.
In the midst of the European woes coming into focus, the domestic picture turned murky with concerns over the oil rig explosion in the Gulf of Mexico. BP’s stock quickly turned and its future as a leading international energy concern came into question. The full impact of the oil leak on the local Gulf economy is yet to be determined as we continue to await the good news that the leak has been completely curtailed.
The April 30th deadline for first time homebuyer tax credits expired and although buyers rushed to complete sales by that date, the program cost the Federal Government 1 billion dollars and didn’t achieve the full desired result in stabilizing the housing market although we have seen pockets of improvement across the nation. On Cape Cod, the volume of real estate sales in June 2010 was up 46% from June 2009 and the total value of sales was up 70% from the previous year. At the end of the quarter, the House of Representatives a p p roved a landmark overhaul of financial regulations. Some fear that the re f o rm may hurt financial institutions’ profitability in the long run, but many think the markets will be relieved that worst-case scenarios were averted and that many of the regulations will take years to phase in.
With the return of market volatility in the past quarter, we expect to see some new opportunities over the next several months. As the future unfolds before us, today’s foggy uncertainty will clear
|
INDEX |
YTD Return |
| STANDARD & POORS 500 |
-11.43% |
|
DOW JONES INDUSTRIAL AVERAGE |
-9.36% |
|
NASDAQ COMPOSITE |
-11.83% |
|
S&P MID CAP 400 |
-9.59% |
|
RUSSELL 2000 |
-9.92% |
|
MSCI EAFE INTERNATIONAL |
-13.97% |
Michael S. Kiceluk, CFA®, Chief Investment Officer (mkiceluk@capecodfive.com)
Edward R. Eastman, III, Senior Investment Officer (neastman@capecodfive.com)
Rachael Aiken, CFP®, Senior Investment Officer (raiken@capecodfive.com)
The facts and opinions presented herein are provided solely for the information of Cape Cod Five Trust and Asset Management clients. The information presented has been compiled from sources believed to be reliable and accurate, but we do not warrant its accuracy or completeness and will not be liable for any loss or damage caused by reliance thereon.
Investments are NOT FDIC INSURED, NOT DIF INSURED, NOT BANK GUARANTEED and MAY LOSE VALUE.
_________________________________________________
Certificates of Deposit may be FDIC Insured.
