Commentaries

PMC Market Commentary: May 2, 2014

A Macro View – April Monthly Recap

Domestic equity markets were a study in contrasts in April, with significant divergence among various segments of the market. The key story of the month was the continued rotation in leadership within market capitalizations as well as growth-value dimensions. In addition, Internet-related growth stocks suffered declines as investors assessed whether those companies would live up to their high current valuations. Geopolitical tensions remained at the forefront of investors’ minds, with Russia continuing its saber-rattling in regards to Ukraine. Economic data began to thaw with the weather, posting slightly better results than during the first three months of the year. Employment gains in April were 288,000, the fastest growth in almost two years, and far exceeding analyst expectations. In addition, the unemployment rate dropped to 6.3% from 6.7%.

With this as a backdrop, stocks posted mixed results. The S&P 500 rose +0.7% for the month, and the Dow Jones Industrials gained +0.9%. However, the tech-heavy Nasdaq Composite Index again lost ground, declining -2.0%. The divergence between the Russell 1000 Index of large cap stocks and Russell 2000 Index of small cap stocks increased during the month, with returns of +0.5% and -3.9%, respectively. Value stocks extended their outperformance relative to growth stocks. In terms of sector performance, energy was the strongest performer on a relative basis, gaining +5.2%, while financials were the poorest performers, posting a decline of -1.5%.

International equity markets also posted mixed results in April. The MSCI World ex-U.S. Index gained +1.4% for the month. Emerging markets also held their own again last month, advancing lightly, yet underperforming developed markets. Analysts remain concerned about the growth prospects in emerging economies, which may remain subdued as the Federal Reserve continues to taper its quantitative easing program. The MSCI Emerging Markets Index gained +0.4% for the month. The MSCI EAFE Index, which measures developed markets performance, generated slightly better performance, returning +1.5% for the month, as the Russia-Ukraine tensions remained elevated but not yet escalating. Regionally, Latin America and Europe were the best performers on a relative basis, with the MSCI EM Latin America Index and the MSCI Europe Index gaining +2.8% and +2.6%, respectively. Eastern Europe and Japan were among the poorest performers, with results of -4.5% and -2.6%, respectively.

Fixed-income markets were almost all high in April, with economic data remaining somewhat soft coming out of the severe winter. The Fed continued its pace of tapering of its asset purchase program during the month, reducing purchases by an additional $10 billion. In this environment, the benchmark 10-year U.S. Treasury yield ended the month at 2.65%, down slightly from the 2.72% the level of March 31st. Broad-based fixed-income indices posted returns in April, with the Barclays U.S. Aggregate Bond Index advancing +0.8% for the month. Global fixed-income markets were also higher, with the Barclays Global Aggregate ex-U.S. Index returning +1.3% for the month. Intermediate-term corporate bonds were also strong, as the Barclays U.S. Corporate 5-10 Year Index generated a gain of +1.2%. The Barclays U.S. Corporate High Yield Index posted a gain of +0.6% for the month. Municipals continued their recent robust performance, advancing +1.2%.

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