PMC Weekly Review - March 4, 2016
Domestic equity markets were somewhat mixed in February, with certain segments staging a partial rebound from January’s dreadful performance. Investors continued to deal with uncertainty on a number of fronts that include global economic growth; U.S. interest rate policy; China’s ability to stabilize its markets and economy; and the domestic political landscape. Although performance was modestly negative overall during the quarter, when compared to the situation in the prior month it seemed as though the market made great gains. Although various segments of the domestic economy continued to show signs of deceleration, the February employment report, released today, was encouraging in that employers added 242,000 jobs during the month. The negative side to the employment report was that both the number of hours worked and wages edged lower. Overall, domestic economic data showed slowing growth during the month, with the latest estimate of fourth quarter real gross domestic product (GDP) coming in at +1.0%, above the +0.7% growth of the prior estimate, but lower than the +2.0% growth of the third quarter.
Against this backdrop, broad market indices were mixed during the month. The S&P 500 declined by -0.1% for the month, and is now down -5.1% year-to-date. The Dow Jones Industrial Average (DJIA) edged higher, posting a gain of 0.8% for the month. The tech-heavy Nasdaq Composite Index declined -1.0% in February. The Russell 2000 Index of small cap stocks performed in line with the Russell 1000 Index of large cap stocks, with each posting returns of 0.0%. Value stocks modestly outperformed growth stocks during the month. In terms of sector performance, the top performers in the month were materials, industrials, and telecom services, with returns of +7.6%, +4.0% and +2.7%, respectively. Financials and energy were the poorest performers, with returns of -2.9% and -1.9%, respectively. Commodities continued their downward trend during the month, declining -1.63%. REITs posted slight losses in February, declining by -0.9%.
International equity markets also generated modest losses on balance in February, with most areas underperforming U.S. equity indices. The MSCI World ex-U.S. Index declined by -1.4% for the month. Emerging markets posted a second consecutive month of improving relative performance. The MSCI Emerging Markets Index eased by -0.2% for the month, and the MSCI EAFE Index, which measures developed markets performance, fell -1.8%. Regionally, Latin America and Eastern Europe generated the best relative performance, advancing +3.8% and +1.7%, respectively. Japan and China were the poorest relative performers, declining by -2.7% and -2.5%, respectively, during the month.
Fixed income markets were once again mostly higher in February, as investors again adopted more of a risk-off posture in the wake of widespread uncertainty. Yields remained low throughout the month, but troughed two weeks into the month before steadily edging higher. Bond investors continue to analyze when the Federal Open Market Committee (FOMC) may next raise interest rates, with the consensus now expecting an increase in June at the earliest. Within this environment, the 10-year U.S. Treasury yield ended the month at 1.74%, down 19 basis points from the 1.93% level of January 31. Performance of broad-based fixed income indices was, on balance, higher in February, with the Barclays U.S. Aggregate Bond Index advancing +0.7% for the month. Global fixed income markets delivered strong gains, with the Barclays Global Aggregate ex-U.S. Index jumping +3.5%. Intermediate-term corporate bonds were higher, as the Barclays U.S. Corporate 5-10 Year Index gained +0.9%. The Barclays U.S. Corporate High Yield Index added +0.6%. Municipals were also modestly higher, gaining +0.2% for February.
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.
© 2016 Envestnet. All rights reserved.