LRIA 2nd Quarter Market Commentary

  • U.S. stocks were positive and hit new all-time highs for the fourth consecutive quarter
  • Non-U.S. stocks were also positive and outperformed U.S. stocks
  • Stock volatility remained near record lows. The S&P 500 hasn’t had a 5% correction in over a year
  • The U.S. economy had positive but slow growth. It is currently the third longest economic expansion since 1900
  • The Federal Reserve raised short term interest rates to 1.25%



Market Summary

Similar to last quarter, conditions for stocks were relatively positive illustrated by low volatility and positive economic growth. U.S. stocks, as measured by the S&P 500, reached all-time highs for the fourth consecutive quarter despite lingering concerns about healthcare and tax reform. International stocks also saw positive performance and continued their recent trend of outperforming U.S. stocks.

The U.S. economy entered its 97th month of expansion. This has been the third longest expansion since 1900, although it has also been the slowest expansion since 1950[1]. Slow but positive economic growth continued in the second quarter, inflation remained relatively low and stable, and the U.S. labor market continued to strengthen. International economies saw a pickup in growth this past quarter after two years of mediocre economic growth. The Eurozone grew particularly fast, thanks in part to a weaker currency and rising confidence.

With the U.S. economy approaching the Federal Reserve’s targets of unemployment and inflation and the global economy generating fewer worries than in recent years, the Federal Reserve raised short term interest rates by .25% to 1.25% in June. This was the fourth time the Fed raised interest rates since the economic crisis of 2008-2009. Barring any significant negative shocks or fiscal stimulus, the Fed will likely continue to raise rates at a slow pace.

Below is a summary of returns for the major indexes[2] and a summary of global headlines throughout the quarter[3]. It is important to note that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news.

US Large Stocks

(S&P 500 TR)

US Small Stocks

(Russell 2000 TR)



Emerging Markets


US Bonds

(Barclays US Agg Bond TR)

2nd Quarter 2017* 3.09%


6.12% 6.27% 1.45%
2017 YTD 9.34% 4.99% 13.81% 18.43% 2.27%
3yr annualized* 9.61% 7.36% 1.15% 1.07% 2.48%
5yr annualized* 14.63% 13.7% 8.69% 3.96% 2.21%
10yr annualized* 7.18% 6.92% 1.03% 1.91%



Current Trends

41 of the 46 largest stock markets in the world delivered positive returns during the quarter (See graph below)[4].

Despite U.S. stocks being one of the worst performing countries for the quarter, they continued their uptrend and hit another new all-time high. U.S. stocks have significantly outperformed international stocks since 2009, so the recent shift to international stock outperformance has been notable.

One major positive for international stocks was that the U.S. dollar weakened during the quarter, which has the effect of increasing returns for U.S. based investors in unhedged non-U.S. stocks. In addition, the political and trade risks that were present at the beginning of the year faded as Europeans elections favored more moderate candidates.

U.S. earnings in the next 12 months were expected to be at a record high. However, earnings in both Europe and Emerging Markets remained far below their 2011 peaks. A long cyclical recovery in Europe and an improving banking system could lift European earnings while Emerging Market profits could rebound on firmer commodity prices. Both European and EM earnings appeared to have more room to grow earnings than in the U.S.

Low Volatility Continued

With strong earnings, low inflation and low interest rates, stocks remained calm for the quarter. The Volatility Index (known as the VIX), shows the market’s expectations of 30-day volatility. The VIX finished the quarter in the lowest 4% of all periods (see chart below[5]). The VIX had seven days below 10 so far this year, which is the same number of days below 10 as all prior years combined since inception in 1990[6].

In addition, the S&P 500 hasn’t experienced a 5% correction in over a year, which has only happened six other times since 1950[7]. Since 1950, the average yearly correction for the S&P 500 has been 13.6% (See graph below)[8]. Low volatility doesn’t mean that a correction is imminent. However, there is always the potential a larger correction could occur sometime later this year.


Broad Economic Growth

U.S. economic data was mostly positive and indicative of an ongoing expansion (although a slower than average expansion). Consumer confidence remained high and both manufacturing and service sectors remained strong throughout the quarter[9]. Unemployment data continued to be strong and inflation remained stable and low. One of the benefits of this slow growth environment is that it has helped keep inflation in check and the Federal Reserve accommodative. Both these factors have assisted in keeping the bull market going.

The positive economic data led to the Federal Reserve to raise short-term interest rates by a quarter point to 1.25% – their fourth rat hike since December 2015. One more interest rate hike was expected by investors for this year.

Economies outside of the U.S. had one of their best years in more than a half decade. All of the world’s top 20 economies were growing so far this year. This broader global growth boosted overall global trade, particularly in emerging market economies where exports are a large share of their economies. In fact, world trade was on track to post the best growth since 2010[10]. In addition, all of the world’s top 20 economies were on track to grow in 2017[11] (see chart below).

In recent months, there have been a few pockets of weakness in the cyclical sectors. Both Light vehicle sales and housing start slowed down this past quarter[12] (See charts below). This will be something to watch going forward.

If you have any questions or would like more information on how this affects your accounts, please contact us.






Leonard Rickey Investment Advisors, PLLC (“LRIA”), is an SEC registered investment adviser located in the State of Washington. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of LRIA, please contact LRIA or refer to the Investment Adviser Public Disclosure website (

This newsletter is provided for general information only and contains information that is not suitable for everyone. As such, nothing herein should be construed as the provision of specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced herein is historical in nature and is not an indication of or a guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Your experience may vary according to your individual circumstances and there can be no assurance that LRIA will be able to achieve similar results for all clients in comparable situations or that any particular strategy or investment will prove profitable.   As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. There is no guarantee that the views and opinions expressed herein will come to pass. This newsletter contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore.

Stock investing includes numerous specific risks including the fluctuations of dividend, loss of principal, and potential illiquidity of the investment in a falling market. International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Small cap stocks may be subject to a higher degree of risk than more established companies’ securities. The illiquidity of the small cap market may adversely affect the value of these investments. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. This newsletter should not be regarded as a complete analysis of the subjects discussed.

Any projections, forecasts and estimates, including without limitation any statement using “expect” or “believe” or any variation of either term or a similar term, contained here are forward-looking statements and are based upon certain current assumptions, beliefs and expectations that LRIA considers reasonable or that the applicable third parties have identified as such. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include, among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change and volatility in the value of the U.S. dollar, market volatility and distressed credit markets, and other market, financial or legal uncertainties. Consequently, the inclusion of forward-looking statements herein should not be regarded as a representation by LRIA or any other person or entity of the outcomes or results that will be achieved by following any recommendations contained herein. While the forward-looking statements here reflect estimates, expectations and beliefs, they are not guarantees of future performance or outcomes. LRIA has no obligation to update or otherwise revise any forward-looking statements, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of events (whether anticipated or unanticipated), even if the underlying assumptions do not come to fruition. Opinions expressed herein are subject to change without notice and do not necessarily take into account the particular investment objectives, financial situations, or particular needs of all investors.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price. The risks associated with investment-grade corporate bonds are considered significantly higher than those associated with first-class government bonds. The difference between rates for first-class government bonds and investment-grade bonds is called investment-grade spread. The range of this spread is an indicator of the market’s belief in the stability of the economy.

The fast price swings in commodities and currencies can result in significant volatility in an investor’s holdings.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

For additional information about LRIA, including fees and services, please contact us for our Form ADV disclosure brochure using our contact information herein. Please read the disclosure brochure carefully before you invest or send money.



  • The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
  • The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
  • The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. It cannot be invested into directly.
  • The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices of approximately 800 stocks and is designed to measure equity market performance in 23 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, , Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.
  • The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization index of approximately 900 stocks and is designed to measure equity market performance in 21 developed market countries outside of North America.
  • MSCI ACWI Index (All Cap World Index) is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. It is comprised of stocks from both developed and emerging markets.
  • The MSCI World ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22 of 23 Developed Markets (DM) countries*–excluding the United States. With 3,508 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in each country.
  • The MSCI USA Investable Market Index (IMI) is designed to measure the performance of the large, mid and small cap segments of the US market. With 2,473 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in the US.
  • The MSCI Emerging Markets Investable Market Index (IMI) captures large, mid and small cap representation across 24 Emerging Markets (EM) countries*. With 2,687 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in each country.
  • The Nasdaq Composite Index is the market capitalization-weighted index of approximately 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests.
  • The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future. The index is designed to be tradable, readily accessible to market participants, and cost efficient to implement.
  • The S&P 500 Cons Discretionary Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® consumer discretionary sector.
  • The S&P 500 Cons Staples Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® consumer staples sector.
  • The S&P 500 Energy Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® energy sector.
  • The S&P 500 Financials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® financials sector.
  • The S&P 500 Health Care Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® health care sector.
  • The S&P 500 Industrials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® industrials sector.
  • The S&P 500 Materials Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® materials sector.
  • The S&P 500 Telecom Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® telecommunication services sector.
  • The S&P 500 Technology Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® information technology sector.
  • The S&P 500 Utilities Index is a market cap weighted index comprised of those companies included in the S&P 500 that are classified as member of GICS® utilities sector.




[1] J.P. Morgan Asset Management

[2] Morningstar. Through March 31, 2017. All returns are in U.S. dollars (USD)

[3] Dimensional Fund Advisors. Graph Source: MSCI ACWI Index [net div]

[4] Dimensional Fund Advisors. Country performance based on respective indices in the MSCI World ex US IMI Index, MSCI USA IMI Index, and MSCI Emerging Markets IMI Index. All returns in USD [net div]


[6] LPL Research

[7] LPL Research

[8] LPL Research, Factset.

[9] ISM Manufacturing Index, ISM non-Manufacturing Index

[10] J.P. Morgan Asset Management

[11] Schwab. Factset

[12] J.P. Morgan Asset Management