PMC Weekly Review - May 1, 2015
Domestic equity markets, on balance, generated positive returns in April, although performance varied by asset class. Whereas economic data has been generally supportive of higher prices in recent prior months, data released in April showed signs of an economic soft patch. The government’s first estimate of first quarter real gross domestic product (GDP) came in at an anemic 0.2%, far below expectations and a meaningful decline from the 2.2% and 5.0% growth of the fourth and third quarters of 2014, respectively. Investors also continue to closely watch the next moves of the Federal Reserve (Fed), which is carefully monitoring the economic data to determine the appropriate time to begin to raise interest rates. The Fed took no action at its meeting this week, and acknowledged the economy’s recent struggles. However, the Fed believes the slowdown in growth is likely to be temporary, and that the economy should begin to accelerate soon. The consensus among analysts continues to be that the Fed will begin to normalize rates beginning sometime this fall.
Against this backdrop, stocks delivered modest gains in April. The S&P 500 gained +1.0% for the month, and is now up +1.9% year-to-date. The Dow Jones Industrials (DJIA) advanced +0.5% for the month. The tech-heavy Nasdaq Composite Index advanced +0.9% in April. The Russell 2000 Index of small cap stocks underperformed the Russell 1000 Index of large cap stocks, with returns of -2.6% and +0.7%, respectively. Value stocks modestly outperformed growth stocks during the month. In terms of sector performance, the top performers in the month were energy, telecom services and materials, with returns of +6.7%, +5.9% and +3.1%, respectively. Health care and consumer were the poorest performers, with returns of -1.3% and -0.8%, respectively. Commodities rallied during the month, jumping +5.7%, but the asset class is still off -25% over the past year. REITs took it on the chin in April, declining -5.8% in a somewhat difficult month for interest rate-sensitive stocks.
International equity markets enjoyed a better month than domestic equity indexes, as markets across the world were generally higher. Developed markets continued to benefit from the European Central Bank’s aggressive asset purchase program, and emerging markets were boosted by stronger commodities prices in April. The MSCI World ex-U.S. Index gained +4.4% for the month, bringing its year-to-date advance to +8.5%. Emerging markets surged in April, as commodities prices staged a significant rally. The MSCI Emerging Markets Index jumped by +7.7% for the month, and the MSCI EAFE Index, which measures developed markets performance, was up +4.2%. Regionally, China was a huge winner on both absolute and relative bases, gaining +16.7%. China has advanced almost 44% over the past 12 months. Japan and Europe were among the poorest relative performers, with results of +3.6% and +4.5%, respectively.
Fixed income markets were mixed in April, with selling pressure escalating in the U.S. as investors look for higher yields. Investors are also becoming increasingly acclimated to the fact that the Fed will begin to normalize rates, perhaps sooner rather than later. Within this environment, the 10-year U.S. Treasury yield ended the month at 2.05%, up 12 basis points from the 1.93% level of March 31st. Broad-based fixed-income indices were soft in April, with the Barclays U.S. Aggregate Bond Index declining -0.4% for the month. Global fixed-income markets finally posted a monthly gain, as the Barclays Global Aggregate ex-U.S. Index advanced +2.2%. Intermediate-term corporate bonds were slightly lower, as the Barclays U.S. Corporate 5-10 Year Index edged lower by -0.2%. The Barclays U.S. Corporate High Yield Index was a strong gainer, advancing by +1.2%. Municipals also had a difficult month, shedding -0.5% in April.
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