Commentaries

PMC Weekly Review - April 10, 2015

A Macro View – March Monthly Recap

Domestic equity markets were generally lower in March, continuing the up-and-down performance that has been characteristic so far in 2015. Markets assimilated economic data that, while still trending higher, has slowed somewhat recently. The government’s third estimate of fourth quarter real Gross Domestic Product (GDP) came in at +2.2%, the same as the prior estimate, but below the rate of the third quarter. Investors also continue to analyze the Federal Reserve’s (Fed) likely next move with respect to interest rates. The Fed is weighing how soon to begin to normalize interest rates, as well as when to begin to reduce the size of its balance sheet. Inflation is not yet an issue, but many analysts believe the Fed will begin to hike rates sometime in the fall.

Within this context, stocks on balance generated modest losses in March. The S&P 500 declined -1.6% for the month, reducing its year-to-date return to +0.95. The Dow Jones Industrials (DJIA) retreated -1.9% for the month. The tech-heavy Nasdaq Composite Index gave up -1.2% in March. The Russell 2000 Index of small cap stocks materially outperformed the Russell 1000 Index of large cap stocks, with returns of +1.7% and -1.3%, respectively. Growth stocks continued their strong performance relative to value stocks during the month. In terms of sector performance, the top performers in the month were health care, consumer discretionary and financials, with returns of +0.9%, -0.5% and -0.6%, respectively. Materials and telecom services were the poorest performers, with returns of -4.7% and -3.7%, respectively. Commodities once again dropped sharply, shedding -5.4% for the month, and the asset class is now down -27% over the past year.

International equity markets overall had a difficult month as well. Economic growth remains lackluster, and investors are wondering whether the European Central Bank’s (ECB) recently announced asset purchase program will have the intended effects. The MSCI World ex-U.S. Index fell -1.6% for the month, reducing its gain for the year to +4.0%. Emerging markets also declined in March, as moderating world growth kept those markets in check. The MSCI Emerging Markets Index eased by - 1.4% for the month, and the MSCI EAFE Index, which measures developed markets performance, was also down -1.4%. Regionally, China was the best performer on a relative basis, gaining +2.4%. Latin America and Europe were among the poorest relative performers, with results of -7.5% and -2.6%, respectively.

Fixed-income markets were modestly higher in March, coinciding with the decline in equities, and speculation as to when the Fed would begin to raise interest rates. Within this environment, the 10-year U.S. Treasury yield ended the month at 1.93%, down seven basis points from the 2.00% level of February 28th. Broad-based fixed-income indices fared decently during March, with the Barclays U.S. Aggregate Bond Index advancing +0.5% for the month. Global fixed-income markets remained mired in a downward trend, as the Barclays Global Aggregate ex-U.S. Index fell -2.9% for the month. Intermediateterm corporate bonds reversed course from the prior month, as the Barclays U.S. Corporate 5-10 Year Index advanced by +0.4%. The Barclays U.S. Corporate High Yield Index eased, retreating by -0.6%. Municipals returned to generating positive performance, gaining +0.3% for the month.

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