By Jay H. Edmondson, Investment Analyst

During the second quarter of 2011, the social unrest in the Middle East, the devastating earthquake and tsunami in Japan, and renewed sovereign debt concerns in Europe all weighed heavily on global equity markets during the quarter. In the U.S., markets advanced nicely in April but declined in May and June. The S&P 500® Index posted a slightly positive second quarter return of 0.10%, bringing the year-to-date return to 6.02%. The broader U.S. market, as measured by the Russell 3000® Index, experienced a -0.03% return for the quarter and 6.35% return for the year-to-date period.

From a sector perspective, results were mixed as only four of the nine sectors within the Russell 3000® Index were in positive territory for the quarter. In general, the more defensive-oriented sectors produced positive performance returns, while the more economically-sensitive sectors tended to lag. The best performing sectors were healthcare, consumer staples and utilities, all of which posted solid gains. The worst performing sectors were energy and financial services, both posting negative returns for the period.

In terms of equity market capitalization and style, many indices were closely aligned. Large-cap companies outperformed their small-cap counterparts as the Russell 1000® Index posted a slightly positive return of 0.12% and the Russell 2000® Index declined 1.61%. Style differentiation was evident in the period as growth-oriented stocks outperformed value-oriented stocks across all market capitalization segments. In the large capitalization segment, the Russell 1000® Growth Index and Russell 1000® Value Index had quarterly returns of 0.76% and -0.50%, respectively. Stocks with higher beta, higher market capitalization and higher earnings growth characteristics generally outperformed during the second quarter.

Developed international equity markets advanced in April but declined in May and June and still managed to finish the quarter in positive territory. The MSCI-EAFE Index (Net), a measure of international developed country returns, generated a second quarter return of 1.56%, bringing the year-to-date return to 4.98%. Emerging markets equities underperformed their developed counterparts during the period as the MSCI Emerging Market Index returned -1.15% for the quarter and 0.88% for the year-to-date period.

From a country perspective, markets within the MSCI All Country World ex-U.S. Index (representing both developed and emerging international markets) experienced mixed results. The best performing markets were primarily in Asia/Pacific ex Japan and Europe and included New Zealand, Indonesia, Switzerland and Germany. Negative performing markets included Greece and Peru. From a sector perspective, defensive sectors generally experienced higher returns than economically-sensitive sectors. The healthcare and consumer staples sectors were among the best performers, while the energy and information technology sectors lagged.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.