Commentaries

PMC Market Commentary: December 5, 2014

A Macro View – November Monthly Recap

Domestic equity markets gained ground again in November, in a continuation of the recovery from the September lows. Economic data remained a key driver of the market’s gains, as both consumer spending and business investment are trending higher. The one segment of the market that continued to struggle in the month was energy, which plunged as a result of the sharp drop in crude oil prices. Slowing demand and OPEC efforts to suppress prices in order to discourage fracking in the U.S. contributed to energy’s slide. Domestic economic data continues to make gains, with the latest estimate of third quarter real gross domestic product (GDP) coming in at +3.9%, up from the previous estimate of +3.5%.

Within this landscape, stocks posted moderate gains in November. The S&P 500 gained +2.7% for the month, and is now up +14.0% on a year-to-date basis. The Dow Jones Industrials also marched higher, gaining +2.9%. The tech-heavy Nasdaq Composite Index rose +3.7%, and is now up +16.0% year-to-date. The Russell 2000 Index of small cap stocks struggled on a relative basis, underperforming the Russell 1000 Index of large cap stocks, with returns of +0.1% and +2.6%, respectively. Growth stocks outperformed value stocks during the month. In terms of sector performance, the top performers in the month were consumer staples, consumer discretionary and information technology with gains of +5.5%, +5.4% and +5.3%, respectively. Energy, telecommunications services and utilities were the laggards, with returns of -8.5%, 1.2% and 1.2%, respectively.

International equity markets posted varied performance in November, which is not unusual for this year. Investors remain concerned with lackluster growth outlooks for the eurozone and emerging markets. Many analysts, however, now contend that European stocks are among the best values globally, and should soon begin to generate strong relative performance. The MSCI World ex-U.S. Index gained +2.1% for the month. Emerging markets reverted their former lagging performance in November after having staged somewhat of a rebound in October. The MSCI Emerging Markets Index declined -1.1% for the month, and the MSCI EAFE Index, which measures developed markets performance, was up +1.4%. Regionally, Europe was the best performer on a relative basis, advancing +2.7%. Eastern Europe and Latin America were among the poorest performers, with results of -7.7% and -4.6%, respectively.

Fixed income markets had another month of respectable gains in November, as investors continued to assess the outlook for interest rates now that the Federal Reserve’s asset purchase program has ended. Analysts are now focusing attention on the prospects for the shape of the yield curve, with the consensus being that the curve will eventually invert as rates are normalized. Against this backdrop, the 10-year U.S. Treasury yield ended the month at 2.19%, down 15 basis points from the 2.34% level of October 31st. Broad-based fixed-income indices were mostly higher in November, with the Barclays U.S. Aggregate Bond Index gaining 0.7% for the month. As in October, global fixed-income markets performed relatively poorly, with the Barclays Global Aggregate ex-U.S. Index declining -1.1% for the month. Intermediate-term corporate bonds gained ground, as the Barclays U.S. Corporate 5-10 Year Index advanced +0.8%. The Barclays U.S. Corporate High Yield Index ended the month with a loss of -0.7%. Municipals continued to deliver positive gains, returning +0.2% for the month. Municipals are now up +8.5% for the year.

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