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Quarter-End Insights

Our Take on the Second Quarter

Despite the Fed taper, a U.S. economy struggling to shake off the winter blues, and a slowing China, stocks continued their remarkable winning streak from April through June.

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The runup in stocks showed no signs of stopping during the second quarter, despite headwinds of the Fed's tapering, a slowdown in China, and lingering effects of the harsh winter. The Morningstar US Market Index rose nearly 6% during the past 13 weeks, and the index is now up 6.8% year to date. On an annualized basis, stocks are up nearly 20% during the past five years. 

This continued upward movement in stock prices took place against an uncertain economic backdrop. The U.S. economy seems unable to thaw out from the deep freeze experienced across most of the country last winter. Data were decidedly mixed in the quarter, with housing continuing to be lethargic as a result of bad weather, declining house affordability and tighter lending standards. Inflation showed signs up picking up toward the end of the quarter, driven by higher food and energy prices, though Morningstar director of economic analysis Bob Johnson doesn't expect for price levels to get out of control. On the mostly positive side, the manufacturing sector showed improvement in the quarter, while job growth continued. Overall, the economy is likely to bounce back somewhat from the sharp 2.9% decline in gross domestic product seen in the first quarter, but hopes of a strong growth in 2014 are becoming a thing of the past.

Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.