Kai W. Hong, CFA
Managing Director & Chief Investment Strategist
While the last few days of June saw a large dose of Brexit-induced volatility, the market recovery was well on its way by the start of July as many of the consequences investors feared failed to materialize. That said, there was dislocation among UK property funds as several were frozen in response to a dramatic increase in withdrawals. There will be meaningful impacts from the coming change, but the scope and magnitude of those will only become clearer in the months and years ahead. While broad global macroeconomic metrics continued to be mixed, the US remained a relative bright spot with a strong rebound in US job growth, an accommodating US Fed, and good company earnings pacing the markets upwards. In a sign of the sanguine mood of investors, an attempted coup in Turkey mid-month saw very little reaction in the broad financial markets. However on the risk-side, US consumer sentiment and spending were seeing some softening, corporations were stockpiling cash, valuations in many markets continued to be elevated, and expectations for an interest-rate increase in the US before year-end grew.
The strong rally at the beginning of the month eventually leveled out, but the Russell 3000 Index finished quite well at +4.0%. At the sector level, Technology rebounded strongly from the declines of the prior month to lead while the defensive sectors of Energy, Utilities, and Staples lagged. US small cap stocks led all capitalization buckets as the Russell 2000 Index returned +6.0%. Outside of the US, market performance was equally positive. The developed market MSCI World ex USA Index returned +4.9% while the developing market MSCI Emerging Markets Index returned +5.0%.