PMC Market Commentary: June 6, 2014
Domestic equity markets continued to show steady improvement from the performance earlier in the year. A key driver of the performance was the recovery of the economy from its underwhelming first quarter results, which were largely due to the severe weather. There was continued rotation out of small caps and into large caps, and growth continued to be favored over value. However, internet-related stocks stabilized during the month, after the steep sell-off in April. Geopolitical tensions eased somewhat, with Russia backing down from its aggressive stance. In terms of economic data, it continued to improve during the month. Employment gains in May were 217,000, below April’s surge, but in line with expectations. At the same time, the unemployment rate remained at 6.3%, somewhat lower than the consensus estimate of 6.4%.
Against this backdrop, stocks posted largely positive results. The S&P 500 rose +2.4% for the month, and the Dow Jones Industrials gained +1.2%. The tech-heavy Nasdaq Composite Index rebounded nicely from April’s decline, gaining +3.3%. Once again, the Russell 1000 Index of large cap stocks outperformed the Russell 2000 Index of small cap stocks, with returns of +2.3% and +0.8%, respectively. Growth stocks staged a rebound relative to value stocks. In terms of sector performance, information technology was the strongest performer on a relative basis, gaining +3.8%, while utilities were the poorest performers, posting a decline of -1.1%.
International equity markets also posted generally strong results in May. The MSCI World ex-U.S. Index gained +2.1% for the month. Emerging markets fared very well on both absolute and relative bases, outperforming developed markets. Recent steps by the European Central Bank (ECB) to move the deposit rate to -0.1% is an aggressive effort toward monetary stimulus which helps emerging economies. The MSCI Emerging Markets Index gained +3.5% for the month. The MSCI EAFE Index, which measures developed markets performance, slightly underperformed, returning +1.8% for the month. Regionally, Eastern Europe and Japan were the best performers on a relative basis, with the MSCI EM Eastern Europe Index and the MSCI Japan Index gaining +8.8% and +4.1%, respectively. Latin America and Europe were among the poorest performers, with results of -0.04% and +1.1%, respectively.
Fixed-income markets were all higher in May, as investors continue to remain cautious about shifting allocations toward equities. The Federal Reserve 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 2.46%, down 19 basis points from the 2.65% level of April 30th. Broad-based fixed-income indices posted returns in May, with the Barclays U.S. Aggregate Bond Index advancing +1.1% for the month. Global fixed-income markets were also higher, with the Barclays Global Aggregate ex-U.S. Index returning +0.2% for the month. Intermediate-term corporate bonds were also strong, as the Barclays U.S. Corporate 5-10 Year Index generated a gain of +1.6%. The Barclays U.S. Corporate High Yield Index posted a gain of +0.9% for the month. Municipals continued to perform well, gaining +1.3%.
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.