El-Erian: 3 Things Stock Market Investors Should Watch (And 6 Observations)

With attractive returns such as haven’t been seen for quite a few years, investors in global stock markets have had a very good first half of 2017. Record levels for several widely-followed country indexes occurred in the context of notably muted volatility, adding to the sense of investor comfort and accomplishment. All of this was accompanied by tensions and transitions — some completed and others frustrated, at least for now — that will likely influence how investors feel at the end of the year.
Here are six key things you should know about recent developments, along with some important determinants of prospects for the remainder of the year:
A generalized global stock market rally: According to a Wall Street Journal analysis of the world’s 30 biggest stock markets by value, 26 registered gains in the first half of 2017 (the exceptions were Canada, China, Israel and Russia). At the global level, this delivered the best first-half performance since the immediate bounce back from the depth of the 2008-09 global financial crisis. Almost half of these 30 markets ended June at or near record highs. Market leadership rotated with relatively diversified sector performance: Within the S&P, the largest market in the world, nine of 11 sectors delivered gains to investors. Yet dispersion was notable, both overall and within certain segments — notwithstanding a further shift to passive investing and the proliferation of index-based exchange-traded funds. Tech and health care led, with returns of 17 percent each; telecom lost 13 percent and energy 14 percent. Amazon surged while many traditional brick-and-mortar retailers languished. Despite a late gain that helped markets overall offset a June slump in tech, financials ended the six-month period only slightly above water. Meanwhile, size also mattered. The Dow and S&P gained 8 percent, along with 14 percent for the Nasdaq, while the Russell small cap benchmark lost about 5 percent.

This post was published at Zero Hedge on Jul 3, 2017.