PMC Market Commentary: September 5, 2014
Domestic equity markets delivered strong gains in August after declining in July. For the year, most domestic indices have advanced six out of the eight months. Stock prices gained ground despite the various geopolitical turmoil and terrorist uprisings that served as a backdrop. Supporting the rise was continued improvement in economic data, including the second estimate of second quarter real gross domestic product (GDP), which came in at +4.2%, up from the initial estimate of +4.0%. However, employment gains slowed in August, with 142,000 jobs added, the fewest this year. The gain was far below the consensus expectation of 230,000, and represents a pause in the recent robust pattern of additions. The unemployment rate declined slightly to 6.1%.
Within this landscape, stocks were sharply higher during August. The S&P 500 gained +4.0% for the month, and is now up +9.9% on a year-to-date basis. The Dow Jones Industrials also advanced +3.6%. The tech-heavy Nasdaq Composite Index surged +5.0% as technology stocks continued to outpace the broader market. The Russell 2000 Index of small cap stocks reasserted leadership during the month, outperforming the Russell 1000 Index of large cap stocks, with returns of +5.0% and +4.1%, respectively. Growth stocks fared better than value stocks during the month. In terms of sector performance, utilities was the strongest performer on a relative basis, gaining +5.0%, while telecom services was the poorest performers, posting a decline of -1.0%.
International equity markets were also mainly higher in August, but regionally performance was varied. The MSCI World ex-U.S. Index gained a modest +0.6% for the month. Emerging markets continued their relative rebound, and outperformed developed markets for the month. The MSCI Emerging Markets Index gained +2.3% for the month. The MSCI EAFE Index, which measures developed markets performance, declined -0.2% for the month. Regionally, Latin America was the best performer on a relative basis, with the MSCI EM Latin America Index gaining +8.0%. Japan and Eastern Europe were among the poorest performers, with results of -2.2% and -0.5%, respectively.
Fixed-income markets were almost without exception higher in August, adding to their year-to-date gains. As has been its custom in every one of its meetings so far this year, the Fed continued its pace of tapering of its asset purchase program during the month, reducing purchases by an additional $10 billion. With this as a backdrop, the benchmark 10-year U.S. Treasury yield ended the month at 2.34%, down 22 basis points from the 2.56% level of July 31st. Broad-based fixed-income indices were mainly higher in August, with the Barclays U.S. Aggregate Bond Index gaining +1.1% for the month. Global fixed-income markets did not perform quite as well, with the Barclays Global Aggregate ex-U.S. Index returning +0.2% for the month. Intermediate-term corporate bonds fared very well, as the Barclays U.S. Corporate 5-10 Year Index jumped +1.4%. The Barclays U.S. Corporate High Yield Index posted a gain of +1.6% for the month. Municipals continued their solid performance, posting a gain of +1.2%.
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