Commentaries

PMC Market Commentary: September 5, 2014

A Macro View – August Monthly Recap

Domestic equity markets delivered strong gains in August after declining in July. For the year, most domestic indices have advanced six out of the eight months. Stock prices gained ground despite the various geopolitical turmoil and terrorist uprisings that served as a backdrop. Supporting the rise was continued improvement in economic data, including the second estimate of second quarter real gross domestic product (GDP), which came in at +4.2%, up from the initial estimate of +4.0%. However, employment gains slowed in August, with 142,000 jobs added, the fewest this year. The gain was far below the consensus expectation of 230,000, and represents a pause in the recent robust pattern of additions. The unemployment rate declined slightly to 6.1%.

Within this landscape, stocks were sharply higher during August. The S&P 500 gained +4.0% for the month, and is now up +9.9% on a year-to-date basis. The Dow Jones Industrials also advanced +3.6%. The tech-heavy Nasdaq Composite Index surged +5.0% as technology stocks continued to outpace the broader market. The Russell 2000 Index of small cap stocks reasserted leadership during the month, outperforming the Russell 1000 Index of large cap stocks, with returns of +5.0% and +4.1%, respectively. Growth stocks fared better than value stocks during the month. In terms of sector performance, utilities was the strongest performer on a relative basis, gaining +5.0%, while telecom services was the poorest performers, posting a decline of -1.0%.

International equity markets were also mainly higher in August, but regionally performance was varied. The MSCI World ex-U.S. Index gained a modest +0.6% for the month. Emerging markets continued their relative rebound, and outperformed developed markets for the month. The MSCI Emerging Markets Index gained +2.3% for the month. The MSCI EAFE Index, which measures developed markets performance, declined -0.2% for the month. Regionally, Latin America was the best performer on a relative basis, with the MSCI EM Latin America Index gaining +8.0%. Japan and Eastern Europe were among the poorest performers, with results of -2.2% and -0.5%, respectively.

Fixed-income markets were almost without exception higher in August, adding to their year-to-date gains. As has been its custom in every one of its meetings so far this year, the Fed continued its pace of tapering of its asset purchase program during the month, reducing purchases by an additional $10 billion. With this as a backdrop, the benchmark 10-year U.S. Treasury yield ended the month at 2.34%, down 22 basis points from the 2.56% level of July 31st. Broad-based fixed-income indices were mainly higher in August, with the Barclays U.S. Aggregate Bond Index gaining +1.1% for the month. Global fixed-income markets did not perform quite as well, with the Barclays Global Aggregate ex-U.S. Index returning +0.2% for the month. Intermediate-term corporate bonds fared very well, as the Barclays U.S. Corporate 5-10 Year Index jumped +1.4%. The Barclays U.S. Corporate High Yield Index posted a gain of +1.6% for the month. Municipals continued their solid performance, posting a gain of +1.2%.

Download the full PDF

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.

Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.

Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.

Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.

© 2014 Envestnet. All rights reserved.

Featuring

Brandon Thomas
Chief Investment Officer

Articles By This Author

Economic and Market Overview: Third Quarter 2019 Economic and Market Overview: Second Quarter 2019 Economic and Market Overview: First Quarter 2019 Webinar Replay: 2018 Market Outlook Economic and Market Overview: Fourth Quarter 2017 Economic and Market Overview: Third Quarter 2017 Video: Insights on Impact Economic and Market Overview: Second Quarter 2017 PMC Weekly Review - April 7, 2017 Economic and Market Overview: First Quarter 2017 Diversification: An Expensive Lunch Recently, But Free Over Time PMC Weekly Review - February 3, 2017 Economic and Market Overview: Fourth Quarter 2016 PMC Weekly Review - December 2, 2016 Post-Election, Will Markets and Portfolios Emerge Winners or Losers? Webinar Replay: Post-Election Winners and Losers PMC Weekly Review - November 4, 2016 Money Market Reform: What Does it Mean for Investors? PMC Weekly Review - October 7, 2016 Economic and Market Overview: Third Quarter 2016 PMC Weekly Review - September 2, 2016 PMC Weekly Review - August 5, 2016 Economic and Market Overview: Second Quarter 2016 PMC Weekly Review - July 1, 2016 Managing Volatility—A Little Planning Goes a Long Way A Surprise Brexit Leaves the Markets in Uncertain Territory Once Again PMC Weekly Review - June 3, 2016 PMC Weekly Review - May 6, 2016 Economic and Market Overview: First Quarter 2016 PMC Weekly Review - April 1, 2016 The Value of Value PMC Weekly Review - March 4, 2016 PMC Weekly Review - February 5, 2016 PMC Weekly Review - January 8, 2016 Economic and Market Overview: Fourth Quarter 2015 PMC Weekly Review - December 4, 2015 PMC Weekly Review - November 6, 2015 Economic and Market Overview: Third Quarter 2015 PMC Weekly Review -October 2, 2015 Smart Thinking PMC Weekly Review - September 4, 2015 Turmoil in Global Markets: China’s Currency Devaluation PMC Weekly Review - July 31, 2015 PMC Weekly Review - July 10, 2015 Economic and Market Overview: Second Quarter 2015 PMC Weekly Review - June 26, 2015 PMC Weekly Review - June 5, 2015 PMC Weekly Review - May 1, 2015 PMC Weekly Review - April 10, 2015 Economic and Market Overview: First Quarter 2015 Video: The PMC Spotlight: Quantitative Portfolios: Factor-Enhanced Series PMC Weekly Review - March 6, 2015 PMC Weekly Review - February 6, 2015 PMC Weekly Review - January 16, 2015 Economic and Market Overview: Fourth Quarter 2014 PMC Market Commentary: January 2, 2015 PMC Market Commentary: December 5, 2014 PMC Market Commentary: November 21, 2014 PMC Market Commentary: November 7, 2014 PMC Market Commentary: October 24, 2014 Economic and Market Overview: Third Quarter 2014 PMC Market Commentary: October 3, 2014 PMC Market Commentary: September 5, 2014 PMC Market Commentary: August 29, 2014 PMC Market Commentary: August 1, 2014 PMC Market Commentary: July 18, 2014 PMC Market Commentary: July 11, 2014 Economic and Market Overview: Second Quarter 2014 PMC Market Commentary: June 20, 2014 PMC Market Commentary: June 6, 2014 PMC Market Commentary: May 30, 2014 PMC Market Commentary: May 2, 2014 PMC Market Commentary: April 4, 2014 Economic and Market Overview: First Quarter 2014 PMC Market Commentary: March 7, 2014 Tracking Error Primer A Guide to PMC Quantitative Portfolios New Choices for New Challenges – The Case for Liquid Alternatives