PMC Market Commentary: March 7, 2014
A Macro View – February Monthly Recap
Domestic equity markets surged in February, rebounding sharply from January’s losses, as the fears of a global slowdown due to struggles in emerging economies subsided. In addition, Fed chairman Janet Yellen also said the Fed might alter the pace of its tapering should economic conditions warrant, an indication of flexibility welcomed by investors. Domestically, economic data remained mixed, with employment gains in February rising more than expected, even though the unemployment rate also rose to 6.7% from a five-year low of 6.6% in January. Estimates of gross domestic product (GDP) growth in the fourth quarter were scaled back somewhat, to 2.4% from the prior estimate of 2.5%. With this environment as a backdrop, stocks posted their strongest February performance since 1998.
International equity markets also performed very well in February, essentially maintaining pace with domestic U.S. indices. The MSCI World ex-U.S. Index gained 5.1% for the month. Emerging markets continued their cycle of underperformance compared to developed markets, as investors remain concerned about slowing growth in China and other emerging economies that are sensitive to monetary liquidity. The MSCI Emerging Markets Index gained +3.3% for the month. The MSCI EAFE Index, which measures developed markets performance, advanced +5.6% for the month, reflecting some of the positive gains made economically in Europe. Regionally, Europe and Pacific ex-Japan were the best performers on a relative basis, with the MSCI Europe Index and the MSCI Pacific ex-Japan Index gaining +7.3% and +6.5%, respectively. Eastern Europe and Latin America were again among the poorest performers, with results of +0.9% and +1.9%, respectively.
Fixed-income markets generally added to the strong gains posted in January, as investors continued to assess the outlook for interest rates as the Fed pivots to a less aggressive monetary stance. Economic data during the month, while on balance positive, was not overwhelmingly strong so as to fuel inflation concerns. In this environment, the benchmark 10-year U.S. Treasury yield ended the month at 2.66%, essentially flat from the level of January 31st. Broad-based fixed-income indices once again posted positive results in February, with the Barclays U.S. Aggregate Bond Index gaining +0.5% for the month. Global fixed-income markets were among the asset class’s best performers, with the Barclays Global Aggregate ex-U.S. Index gaining +2.0 for the month. Intermediate-term corporate bonds was also a strong segment, as the Barclays U.S. Corporate 5-10 Year Index gained +1.0%. The Barclays U.S. Corporate High Yield Index posted a gain of +2.0% for the month. Municipals also performed well for a second consecutive month, advancing +1.2%.
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