“The beat goes on, the beat goes on.” The Beat Goes On, Sonny and Cher
In March of this year we marked the 8-year anniversary of the market nadir caused by the financial crisis of 2008. To kick off the beginning of the ninth year of this bull market, stock and bond markets continued their march upward. Global equity markets, as measured by the MSCI ACWI Index, were up 4.25% in the second quarter and are up a robust 11.32% for the year. As was the case in the first quarter, large-cap stocks outperformed small-cap stocks, growth stocks outperformed value stocks, and international stocks outperformed U.S. stocks. The best performing asset class for both the quarter and the year has been emerging markets. The MSCI EM Index rose 6.27% in the second quarter and is up 18.43% for the year. Energy and commodity-related investments struggled in the second quarter. Falling commodity prices drove the Bloomberg Commodity Index down 3.00% in the second quarter and down 5.26% for the year.
U.S. bond markets ended the quarter broadly positive. Intermediate-term municipal bonds were up 1.25% in the quarter and are up 3.17% year-to-date. This is surprisingly strong six-month performance given the current interest rate environment. Much of the strong performance in municipal bonds can be attributed to a continued lack of supply of new municipal bond issuance. Despite this lack of supply, demand for municipal bonds continues to be robust. This dynamic of increasing demand and decreasing supply has provided strong price support to the municipal bond market and has helped to drive returns thus far in 2017.
As noted above, we are entering the ninth year of this bull market. And, as the song says, the beat goes on. Stocks are up, interest rates are low, economic growth is tepid but positive, and inflation remains muted. The beat goes on. This bull market is now 99 months old, not quite as long as the bull market of the 1990’s which lasted 113 months. How this ends is anyone’s guess, but this bull market does seem to be a bit long in the tooth. And like the great bull market of the 1990’s, technology stocks are leading the way. But unlike the many internet and technology companies of the 1990’s that are now long forgotten, these transformative technology companies that have been a primary driver of the most recent phase of this bull market have become so ubiquitous in our everyday lives as to become almost unnoticed. Should one be tempted to Google (up 217% the last 5 years) this month’s quote, they could do so on an Apple (up 66% the last 5 years) iPhone, watch the video on YouTube (owned by Google), and post the video on Facebook (up 383% the last 5 years). You may even be inspired to purchase the music on Amazon (up 180% the last 5 years) or watch the Sonny and Cher Hour on Netflix (up 1,351% the last 5 years). Yes, this bull market will eventually end, but how and when are not known. In the meantime, being thoughtful about asset allocation and prudent about saving and spending, as boring as it may be, remain the surest path to financial independence.