Commentaries

PMC Weekly Review - February 6, 2015

A Macro View – January Monthly Recap

Domestic equity markets got off to a rough start in 2015, in a similar scenario to 2014. Stocks tumbled right out of the gate as concerns about economic growth in international regions began to creep into U.S. markets. The S&P 500 index shed more than 3% in the first two weeks of trading before stabilizing somewhat. Economic data continued to trend higher, with real Gross Domestic Product (GDP) and employment remaining key drivers of market activity. The first estimate of fourth quarter real GDP came in at +2.6%, slightly below the forecast of 3.0%. Earnings season also began favorably, with about 77% of S&P 500 companies beating analysts’ earnings estimates. Crude oil staged a recovery at the end of the month, generating its largest two-week rally since 1998.

With this environment as a backdrop, stocks posted generally negative results in January. The S&P 500 declined -3.0% for the month, it’s second straight negative monthly return. The Dow Jones Industrials shed -3.6% gain for the month. The tech-heavy Nasdaq Composite Index declined -2.1% in January. The Russell 2000 Index of small cap stocks was weak on a relative basis during the month, being outperformed by the Russell 1000 Index of large cap stocks, with returns of -3.2% and -2.8%, respectively. Growth stocks outperformed value stocks during the month. In terms of sector performance, the top performers in the month were utilities, health care and consumer staples with returns of +2.4%, +1.2% and -1.1%, respectively. Financials and energy were the poorest performers, with returns of -6.9% and -4.8%, respectively.

International equity markets fared, on balance, somewhat better than domestic U.S. indices in January. Markets responded to the announcement by the European Central Bank (ECB) that it would commence a U.S.-style asset purchase program amounting to about $1.3 trillion. The program was initiated to try to invigorate the tepid eurozone economy. The MSCI World ex-U.S. Index declined -0.3% for the month. Emerging markets posted slight gains in January, in part due to a rebound in oil prices in the latter half of the month. The MSCI Emerging Markets Index advanced +0.6% for the month, and the MSCI EAFE Index, which measures developed markets performance, was up +0.5%. Regionally, Asia was the best performer on a relative basis, advancing +2.4%. Latin America and Eastern Europe were among the poorest performers, with results of -6.2% and -2.1%, respectively.

Fixed-income markets fared well in January, as economic growth concerns caused investors to seek the safe haven of U.S. fixed income. Against this backdrop, the 10-year U.S. Treasury yield ended the month at 1.67%, down fifty basis points from the 2.17% level of December 31st. Broad-based fixed-income indices were higher in January, with the Barclays U.S. Aggregate Bond Index gaining +2.1% for the month. Once again, global fixed-income markets performed relatively poorly, with the Barclays Global Aggregate ex-U.S. Index declining -1.8% for the month. Intermediate-term corporate bonds jumped, as the Barclays U.S. Corporate 5-10 Year Index shot up 3.0%. The Barclays U.S. Corporate High Yield Index ended the month with a gain of +0.7%. Municipals continue to generate positive performance, returning +1.8% for the month.

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