Knowledge Center

The Wilshire Advisor Solutions Knowledge Center contains our video presentations, white papers, monthly and quarterly market commentaries, and product literature.

MORE IN THIS CATEGORY: Market Commentary, Commentary
25 Latest Articles

  Second Quarter 2016 Market Commentary

Economic Highlights

GDP: Real GDP growth continued to slow during the first quarter of 2016, expanding 1.1% on an annualized basis. Weak business spending continues to act as a drag on growth as private investment shrank for the third quarter in a row. The U.S. actually exported more goods and services despite the strong dollar, adding to growth. Consumer spending continues to be the main point of strength in the economy, although government spending grew for the fourth straight quarter. Source: Department of Commerce (BEA)

Interest Rates: Rates moved lower across most maturities during the quarter. The 10-year Treasury yield ended the quarter down 29 basis points, finishing at 1.49%. The 10-year yield was up slightly by the end of May, but then fell precipitously during the first half of June. Just as yields were recovering, the surprising “Brexit” vote caused a flight to quality and Treasury yields fell back down. Source: U.S. Treasury

Inflation: Consumer prices exhibited some growth in the second quarter of 2016. The Consumer Price Index was up 0.7% for the three months ending May, but is up just 1.1% for the past 12 months. The 10-year breakeven inflation rate closed the second quarter at 1.40%, down from 1.62% last quarter, and has been below 2% since September 2014. Source: Department of Labor (BLS), U.S. Treasury

Employment: Jobs growth has been slowing rapidly during 2016, with total nonfarm employment increasing an average of 116,000 jobs per month during the three months ending May 2016. This outcome is perhaps not surprising as the unemployment rate has now reached 4.7%, down from 5.5% in May of 2015. Source: Department of Labor (BLS)

Housing: Home prices have risen during a three month stretch, with the S&P Case-Shiller 20-city Home Price Index up 2.4% for the three months ending March 2016. For the past 12 months, the Index is up 5.4%. Source: S&P

The U.S. Equity Market

The U.S. stock market, represented by the Wilshire 5000 Total Market IndexSM, was up 2.78% for the second quarter of 2016. Price swings during the quarter were not nearly as extreme as what investors experienced during the first quarter, except for the last week of trading. The market was up in both April and May despite modest to weak news within economic releases. The market rebounded from the U.K.-driven sell-off to post three strong days to end the quarter. The Federal Open Market Comittee decided in June to maintain the current Fed Funds rate, although they cut their forecast for economic growth in the U.S., the second downward revision this year.

U.S. Equity

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire 5000 Total Market IndexSM 0.31 2.78 3.98 2.96
Standard & Poor’s 500 Index 0.26 2.46 3.84 3.99
Standard & Poor’s TSX Index (CAD) 0.34 5.07 9.84 -0.20
Wilshire 4500 Completion IndexSM 0.21 4.13 3.98 -3.29

U.S. Equity by Size/Style

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire U.S. Large Cap IndexSM 0.33 2.65 3.94 3.83
Wilshire U.S. Large Cap Growth IndexSM -1.90 0.41 -1.27 -2.22
Wilshire U.S. Large Cap Value IndexSM 2.46 4.80 8.65 9.36
Wilshire U.S. Small Cap IndexSM 0.16 4.09 4.98 -3.99
Wilshire U.S. Small Cap Growth IndexSM -1.43 2.21 -0.61 -11.92
Wilshire U.S. Small Cap Value IndexSM 1.79 6.02 10.41 4.05
Wilshire U.S. Micro Cap IndexSM -0.34 2.79 -3.11 -12.01

Large capitalization stocks underperformed smaller shares, with the Wilshire Large Cap IndexSM up 2.65% versus a gain of 4.09% for the Wilshire Small Cap IndexSM. Larger shares were up for the past 12 months as well, while the small cap index was down. The Wilshire U.S. Micro Cap IndexSM was up 2.79% for the quarter but down 12.01% for the past year. Growth stocks trailed value stocks during the second quarter in both the large and small cap spaces.

Sector performance was mostly positive except for the Information Technology and Consumer Discretionary sectors. The three best performing sectors were Energy, Telecommunication Services, and Utilities, up 11.7%, 7.7%, and 7.4%, respectively.

June Equity Markets: U.S., U.K., & Germany

June Equity Markets: U.S., U.K. & Germany

Source: CNBC

The big news during the quarter was the “Brexit” vote, with the United Kingdom deciding to withdraw from the European Union. The initial reaction from the markets was not surprising; equity prices fell while bond prices rose. However, investors are quickly learning how to manage a post-Brexit world due, in part, to the fact that the entirety of the fallout may not be known for years. While the global financial crisis in 2008 triggered a wave of government intervention and market adjustments, activity post-Brexit will likely be a series of smaller steps.

The Non-U.S. Equity Market

The financial news cycle in the second quarter was dominated by the Brexit vote, overshadowing striking downturns in Asia/Pacific regional markets. The economic slowdown in China, combined with a generally weaker forecast for corporate earnings throughout the region, put investors in a selling mood. Despite the Brexit turmoil, however, European stocks overall managed modest gains in local currency terms. Emerging market stocks presented a mixed picture, with Asian shares underperforming other world region equities. The Japanese yen has rallied strongly this year, boosting performance for U.S.-dollar-based investors, while the British pound has unsurprisingly fallen relative to the U.S. dollar.

Non-U.S. Equity

  USD (%) Local Currency (%)
  MTD QTD YTD 1 Year MTD QTD YTD 1 Year
MSCI AC World ex U.S. -1.53 -0.64 -1.02 -10.24 -2.39 -1.10 -4.14 -9.20
MSCI EAFE -3.36 -1.46 -4.42 -10.16 -3.77 -0.74 -7.21 -10.19
MSCI Europe -4.45 -2.69 -5.13 -11.22 -2.03 1.23 -3.75 -5.85
MSCI Pacific -1.37 0.87 -2.94 -8.19 -6.92 -4.29 -13.22 -17.85
MSCI Japan -2.46 1.01 -5.58 -8.94 -9.78 -7.80 -19.47 -23.66
MSCI EM (Emerging Markets) 4.00 0.66 6.41 -12.05 1.59 0.70 3.45 -7.70
MSCI ACWI ex U.S. Small Cap -2.93 -0.87 -0.20 -5.46 -4.17 -0.97 -3.91 -5.52

The Fixed Income Market

U.S. Treasury securities extended their rally in the second quarter thanks to broad investor uncertainty, initially over the outcome of the Brexit vote, then over the details and timetable of the withdrawal of the United Kingdom from the European Union. Most of the rally unsurprisingly occurred as the Brexit referendum results were followed by broad flight to safety purchases in the two trading days after the vote. The bellwether 10-year U.S. Treasury yield fell from 1.78% as of March 31 to 1.49% as of June 30. Credit spreads tightened somewhat over the quarter as well, as investors continued to seek incremental yield wherever they could find it. Globally, sovereigns benefited from overall market uneasiness.

U.S. Fixed Income

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Barclays U.S. Aggregate 1.80 2.21 5.31 6.00
Barclays Long Gov’t/Credit 4.92 6.55 14.33 15.72
Barclays Long Term Treasury 6.14 6.44 15.12 19.30
Barclays U.S. TIPS 2.08 1.71 6.24 4.35
Barclays U.S. Credit 2.28 3.48 7.54 7.55
Barclays U.S. Corporate High Yield 0.92 5.52 9.06 1.62

Non-U.S. Fixed Income

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Barclays Global Aggregate 2.92 2.89 8.96 8.87
Barclays Global Aggregate (Hedged) 1.90 2.51 5.87 7.37
Barclays Global EM Local Currency Government Universal 2.53 0.18 5.49 1.96
Barclays Global EM Local Currency Gov’t Universe (Hedged) 1.05 0.87 2.95 4.37
Citigroup World Government Bond Index ex-U.S. 4.42 4.04 13.50 13.85
Citigroup World Government Bond Index ex-U.S. (Hedged) 2.43 3.11 7.40 10.19

Real Estate/Commodity

  MTD (%) QTD (%) YTD (%) 1 Year (%)
Wilshire U.S. RESISM 6.51 5.99 11.60 23.55
Wilshire Global ex U.S. RESISM -0.01 1.32 7.07 1.28
Wilshire Global RESISM 4.15 4.34 10.02 14.66
Dow Jones UBS Commodity Index 4.13 12.78 13.25 -13.32
S&P GSCI Commodity 0.08 12.67 9.86 -26.08
Alerian MLP Index 5.13 19.70 14.71 -13.11

The Real Estate and Commodity Markets

Real estate securities continued their strong overall performance into the second quarter, although non-U.S. shares saw gains tempered by the strong U.S. dollar. Commodities in general experienced striking gains for the quarter, with crude oil extending its winning streak with a 16.9% price increase, ending the quarter at $48.33 per barrel. Natural gas prices leapt 32.2% over the second quarter, ending at $2.924 per million BTUs. MLP performance benefited from the excellent performance of oil and gas. Gold rallied as well, partly due to Brexit jitters, with the precious metal ending the quarter at $1,320.60 per troy ounce, a 6.8% increase.

Disclosures

Wilshire Funds Management (“WFM”) and Wilshire Consulting are business units of Wilshire Associates Incorporated (“Wilshire®”). WFM delivers Wilshire Advisor Solutions, which include models designed to provide a broad range of outcome-oriented investment solutions for advisors to use with their clients. Wilshire is a registered service mark of Wilshire Associates Incorporated, Santa Monica, California. All other trade names, trademarks, and/or service marks are the property of their respective holders.

This material contains confidential and proprietary information of Wilshire. It may not be disclosed, reproduced, or redistributed in whole or in part, to any other person or entity without prior written permission from Wilshire Funds Management.

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Past performance does not guarantee future returns. This material may include estimates, projections and other “forward-looking statements.” Due to numerous factors, actual events may differ substantially from those presented.

This material represents the current opinion of Wilshire based on sources believed to be reliable. Wilshire assumes no duty to update any such opinions. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission, or inaccuracy in such information and for results obtained from its use. Information and opinions are as of the date indicated, and are subject to change without notice.

Copyright ©2016 Wilshire Associates Incorporated. All rights reserved.

160406WAS E0716

MORE IN THIS CATEGORY: Market Commentary, Commentary

x

Join Us for our Quarterly Market Update Webinar

Thursday, October 25, 2018, 1pm (PT)