Suffice to say it was not an overwhelmingly exciting quarter in the markets, at least until the last week of June. Global stocks were modestly positive over the last three months, with similar returns from US, international and emerging markets stocks. Year to date international stocks and small cap US stocks are still well ahead of the S&P 500, with returns of 5.52% and 4.75%, respectively. Bonds were down -1.68 for the quarter, now slightly negative (-0.10%) for 2015 year to date. The worst performer for the quarter and now year to date are REITs, down -9.40% over three months, giving back some of the tremendous gains we had seen in 2014.
The best economic news in the US right now is from residential real estate. Permits for new single family home construction jumped 12% year over year in May, now at the highest level since August 2007.
Housing starts are still well below average figures for the last 20 years, but are improving somewhat steadily.
Existing home sales continue to climb as new households form and rental prices grow ever higher. In May existing home sales grew 5.1%, putting the annual rate at 5.35 million units, the highest level since 2009 (which was itself driven by the expiration of the first-time homebuyer’s credit).
The news isn’t all about housing. In May we saw one of the largest increases in consumer spending since August 2009, up 0.9% over the month of April. While this is a bit of a noisy data set, the increase reflects improving consumer confidence about the collective economic outlook. Personal income was also up a very solid 0.5% for the month of May.
Of course, Greece and the Eurozone are back in the headlines yet again. In the seemingly never-ending drama across the Atlantic, Greece and its creditors continue attempted negotiations to resolve the Greek debt crisis as Greece moves closer and closer to default. In late June, Greek Prime Minister Alexis Tsipras announced a national public referendum on accepting the last round of creditor’s terms, to be held July 5th. Greece instituted capital controls and banks were closed the week of June 29th. Greece continues to face extraordinarily poor economic conditions, with unemployment over 25% and an ongoing recession that has reduced the size of the economy by 25%. Questions linger over Greece’s status in the Eurozone, and what the consequences of a “Grexit” might be for Europe and the global economy.
As always, no one truly knows what happens next, or what the consequences of any actions will be. The fact remains that Greece is not only a tiny part of an enormous global economy, but even a very small part of the European economy. And while the drama is certainly fascinating, most investors should not assume that any headlines contain actionable information for a long-term investor.
Tax & Legal Updates
In the last full week of June we had big news in two rulings from the Supreme Court. In a decision in King v. Burwell, the court ruled 6-3 that insurance purchased off of any state-run or Federal exchange is eligible for subsidies under the Affordable Care Act. This decision means that the subsidies (be they purchased in a state-run exchange or Federal exchange) and with them the Affordable Care Act in its current state remain the law of the land. The ruling upheld the individual mandate and provided that those relying on the subsidy for access to health insurance would continue to receive it. It also preserves the employer mandate indefinitely.
The second story from the Supreme Court in June was a decision in Obergefell v. Hodges. The court voted 5-4 that states could not legally ban same-sex marriage, overturning such bans in 13 US states. The ruling will put and end to much confusion and complication related to same-sec marriages and civil unions, affording same-sex couples the same legal protections as opposite-sex married couples. The ruling affects health insurance eligibility, employee benefits, Social Security benefits, Medicare benefits, medical privacy, estate planning, income tax and inheritance/asset transfer rules. There is also speculation that the legalization of same-sex marriage could bring an end to domestic partnership benefits offered by some employers. While the long-term impacts may be clearer, same-sex couples should seek counsel about immediate impacts, especially those in a domestic partnership or civil union.