LPL Financial Market Insight | Q2 2014 Review

Solid Quarter for Stocks and Bonds as U.S. Economy Rebounds From Severe Winter

• “U.S. economy rebounds from tough winter. After a lackluster performance in 2013 of just 2% growth thanks to government spending cuts, tax hikes, and recession in Europe, the U.S. economy entered 2014 poised for a potential rebound. But Mother Nature had other ideas, and severe winter weather caused significant disruptions to economic activity. We do not believe first quarter gross domestic product (GDP) is a harbinger of another wrenching recession. In fact, the return to a more normal weather pattern nationwide has already led to a sharp snapback in economic activity.
• Bull market continues. The stock market continued its steady march higher during the second quarter, with the S&P 500 returning 5.2%. The quarterly gain was the index’s sixth straight and got the sixth year of the bull market off to a solid start. The rebound in the U.S. economy during the spring, earnings gains, and the market’s increased confidence in the growth outlook that has lifted valuations have been the biggest drivers of the continued strong stock market performance. Even after returning more than 30% in 2013, the S&P 500 added another 7% during the first half of 2014.
• Flat quarter for commodities overall. The Dow Jones-UBS Commodity Index barely eked out a positive return during the second quarter with a 0.2% gain, although several individual commodities saw good-sized declines. Among those were the grains, including corn, wheat, and soybeans, as each dropped more than 15% during the quarter after a very strong start to the year. The broad agriculture sector’s nearly 10% loss was driven by better weather conditions in the United States, increased global inventories, and easing tensions in Ukraine, a large global grain exporter.
• Strong first half for bonds. The second quarter of 2014 was another rewarding one for bond investors. After a very challenging 2013 that saw the broad bond market, as measured by the Barclays Aggregate Bond Index, suffer one of its biggest losses in its more than 40-year history, the bond market has now put two good quarters in a row together this year and returned 3.9% in the first half. The yield on the 10-year Treasury note fell from 2.76% to 2.52% during the second quarter, after falling by a similar amount during the first quarter.”

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