PMC Market Commentary: October 3, 2014
Domestic equity markets were broadly lower in September after posting robust gains in August. Stock prices reacted negatively to a perception of slowing growth domestically, continued tepid growth in Europe, below-target growth in China, and the prospect of rising interest rates as the Federal reserve winds down its asset purchase program. However, domestic economic data remains on an uptrend, with the final estimate of second quarter real gross domestic product (GDP) coming in at +4.6%, up from the previous estimate of +4.2%. Employment gains also ramped up in September, with 248,000 jobs added, a significant rise from August’s gain of 142,000. In addition, the unemployment rate declined to 5.9%, the first time it has been below 6% since mid-2008.
Despite the seemingly benign backdrop, however, stocks generally declined during September. The S&P 500 lost -1.4% for the month, and is now up +8.3% on a year-to-date basis. The Dow Jones Industrials also declined, shedding -0.2%. The tech-heavy Nasdaq Composite Index gave up -1.8% as technology stocks finally encountered a bout of profit-taking. The Russell 2000 Index of small cap stocks lagged significantly, underperforming the Russell 1000 Index of large cap stocks, with returns of -5.4% and -1.8%, respectively. Growth stocks fared better than value stocks during the month. In terms of sector performance, consumer staples was the strongest performer on a relative basis, gaining +0.6%, while energy was the poorest performers, posting a decline of -7.6%.
International equity markets were also lower in September, reacting negatively to meager growth in the eurozone region and ongoing geopolitical and military tensions in Ukraine and the Middle East. The MSCI World ex-U.S. Index declined -4.1% for the month. Emerging markets performed poorly, in part due to concern that potentially rising interest rates would hamper growth. The MSCI Emerging Markets Index dropped -7.4% for the month, and the MSCI EAFE Index, which measures developed markets performance, was down -3.8%. Regionally, Japan was the best performer on a relative basis, with the MSCI Japan Index declining -0.6%. Latin America and the Pacific region ex-Japan were among the poorest performers, with results of -13.3% and -9.5%, respectively.
Fixed income markets fared no better than equities in September, as investors have become increasingly concerned about the potential for rising interest rates. The Fed continued to taper its asset purchases during the month, reducing purchases by an additional $10 billion, and announced that the program would end completely in October. With this as a backdrop, the benchmark 10-year U.S. Treasury yield ended the month at 2.51%, up 17 basis points from the 2.34% level of August 31st. Broad-based fixed-income indices were mainly lower in September, with the Barclays U.S. Aggregate Bond Index declining -0.7% for the month. Global fixed-income markets performed extremely poorly, with the Barclays Global Aggregate ex-U.S. Index returning -4.3% for the month. Intermediate-term corporate bonds also suffered, as the Barclays U.S. Corporate 5-10 Year Index fell by -1.4%. The Barclays U.S. Corporate High Yield Index posted a loss of -2.1% for the month. Municipals continued their solid relative performance, posting a gain of +0.1%.
The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.
Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.
Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.
Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.
Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.
© 2014 Envestnet. All rights reserved.