The world may not get pneumonia when the US gets a cold, but it sure gets sick, says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices…

June was anything but boring, as the month started with all eyes on Japan and ended with them watching the US. In Japan, prospects for growth via new stimulus created rapid gains in the market (and a declining yen), which eventually came into conflict with reality caused by too much expectation too fast. However, after some pullback, Japan managed to side with growth (and a weaker yen), posting the best result of any market for June - and the only positive one for that matter, with a 1.42% gain. Japan also posted the best year-to-date return of any market, up 14.74%, with Ireland second, posting a 14.05% gain and the US third, with 12.99%.
 
The Federal Reserve, which was expected to say little, instead laid out a proposed schedule for starting a pullback later in the year, and potentially ending it next year. Markets did not react well, as concern over losing something that is now seen as an entitlement program pushed short-term investors to take profits.  The notice also emphasised the fact that the US was much further along the road to recovery, as the potential for support being removed was considered.  Globally, the discussion is on more support. By month-end, however, the Fed, through most of its regional presidents, were backtracking on the statement, emphasising that the Fed would pull back only once the economy (and employment) demonstrated it was on solid ground, and could support the pullback.  
 
Four emerging markets (compared to two developed ones) posted double-digit losses in the month: Philippines, Brazil, Turkey and Egypt (see below chart for performance).  Emerging markets declined a 6.81%, as the second quarter posted an 8.38% loss, putting the year-to-date loss at 9.03%, with only five markets reaming positive year-to-date (Indonesia 6.52%, Malaysia 4.23%, Philippines 3.88%, Thailand 2.44%, and Taiwan 1.96%).
 
Developed markets did much better, declining only 2.66%, but absent the US 1.44% decline and Japanese 1.42% gain, were off 5.41% - better than emerging, but nothing to shout about. Year-to-date developed markets remain up 7.10%, but again, absent the US and Japan, they are off 2.13%. 
 
The US now accounts for 47.9% of S&P Global Broad Market index, up from 44.6% at year-end 2012, with Japan representing 9.0%, up from 8.2% at year-end. Together, these two countries account for 56.9% of the equity market.


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