PMC Weekly Review - March 4, 2016

A Macro View – February Monthly Recap

Domestic equity markets were somewhat mixed in February, with certain segments staging a partial rebound from January’s dreadful performance. Investors continued to deal with uncertainty on a number of fronts that include global economic growth; U.S. interest rate policy; China’s ability to stabilize its markets and economy; and the domestic political landscape. Although performance was modestly negative overall during the quarter, when compared to the situation in the prior month it seemed as though the market made great gains. Although various segments of the domestic economy continued to show signs of deceleration, the February employment report, released today, was encouraging in that employers added 242,000 jobs during the month. The negative side to the employment report was that both the number of hours worked and wages edged lower. Overall, domestic economic data showed slowing growth during the month, with the latest estimate of fourth quarter real gross domestic product (GDP) coming in at +1.0%, above the +0.7% growth of the prior estimate, but lower than the +2.0% growth of the third quarter.

Against this backdrop, broad market indices were mixed during the month. The S&P 500 declined by -0.1% for the month, and is now down -5.1% year-to-date. The Dow Jones Industrial Average (DJIA) edged higher, posting a gain of 0.8% for the month. The tech-heavy Nasdaq Composite Index declined -1.0% in February. The Russell 2000 Index of small cap stocks performed in line with the Russell 1000 Index of large cap stocks, with each posting returns of 0.0%. Value stocks modestly outperformed growth stocks during the month. In terms of sector performance, the top performers in the month were materials, industrials, and telecom services, with returns of +7.6%, +4.0% and +2.7%, respectively.  Financials and energy were the poorest performers, with returns of -2.9% and -1.9%, respectively. Commodities continued their downward trend during the month, declining -1.63%. REITs posted slight losses in February, declining by -0.9%.

International equity markets also generated modest losses on balance in February, with most areas underperforming U.S. equity indices. The MSCI World ex-U.S. Index declined by -1.4% for the month. Emerging markets posted a second consecutive month of improving relative performance. The MSCI Emerging Markets Index eased by -0.2% for the month, and the MSCI EAFE Index, which measures developed markets performance, fell -1.8%. Regionally, Latin America and Eastern Europe generated the best relative performance, advancing +3.8% and +1.7%, respectively. Japan and China were the poorest relative performers, declining by -2.7% and -2.5%, respectively, during the month.

Fixed income markets were once again mostly higher in February, as investors again adopted more of a risk-off posture in the wake of widespread uncertainty. Yields remained low throughout the month, but troughed two weeks into the month before steadily edging higher. Bond investors continue to analyze when the Federal Open Market Committee (FOMC) may next raise interest rates, with the consensus now expecting an increase in June at the earliest. Within this environment, the 10-year U.S. Treasury yield ended the month at 1.74%, down 19 basis points from the 1.93% level of January 31. Performance of broad-based fixed income indices was, on balance, higher in February, with the Barclays U.S. Aggregate Bond Index advancing +0.7% for the month. Global fixed income markets delivered strong gains, with the Barclays Global Aggregate ex-U.S. Index jumping +3.5%. Intermediate-term corporate bonds were higher, as the Barclays U.S. Corporate 5-10 Year Index gained +0.9%. The Barclays U.S. Corporate High Yield Index added +0.6%. Municipals were also modestly higher, gaining +0.2% for February.

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