Commentaries
PMC Weekly Review - May 6, 2016
A Macro View – April Monthly Recap
Domestic equity markets were generally higher in April, but dispersion across the various dimensions has begun to re-emerge. Investors dealt with many of the same issues from prior months, including anemic global economic growth; slowing growth in the U.S.; uncertain U.S. interest rate policy and negative interest rates in some other parts of the world; and an unsatisfying domestic political environment. In addition, stock prices have rallied strongly from their mid-February lows, and many investors believe the rally may be due for at least a pause in light of muddled economic data. The April employment report, released today, was disappointing, as employers added only 160,000 jobs during the month, below consensus expectations of 200,000. The employment results reflect recent trends in domestic economic data, which has showed signs of slowing. The latest estimate of first quarter real gross domestic product (GDP) came in at +0.5%, below the +0.7% consensus forecast, and also short of the +1.4% growth of the fourth quarter of 2015.
Within this landscape, broad market indices were marginally higher, but the magnitude varied. The S&P 500 rose by +0.4%, and is now up +1.7% year-to-date following a +7.1% rally over the past three months. The Dow Jones Industrials (DJIA) edged higher, posting a gain of +0.6%. The tech-heavy Nasdaq Composite Index declined -1.9% as investors lightened allocations to technology stocks. The Russell 2000 Index of small cap stocks outpaced the Russell 1000 Index of large cap stocks, continuing a rebound in relative performance. Value stocks materially outperformed growth stocks. In terms of sector performance, the top performers were energy, materials, and financials, with returns of +8.7%, +5.0%, and +3.4%, respectively. Information technology and utilities were the poorest performers, with returns of -5.4% and -2.4%, respectively. Commodities rallied, jumping +8.5%. REITs lost ground in April, declining by -2.9%.
International equity markets also were mostly higher, with most regions outperforming U.S. equity indices. The MSCI World ex-U.S. Index rallied +3.2%. Emerging markets also edged higher, with the MSCI Emerging Markets Index advancing by +0.5%. The MSCI EAFE Index, which measures developed markets performance, gained +2.9%. Regionally, Latin America and Japan generated the best relative performance, advancing +6.0% and +4.7%, respectively. Asia and China were the poorest relative performers, declining by -1.3% and -0.2%, respectively.
Fixed income markets were also mostly higher, as investors attempted to navigate the economic and interest rate policy uncertainty. Yields were confined to a fairly narrow range throughout the month. Analysts and bond investors are attempting to assess just when the Federal Open Market Committee (FOMC) may next raise interest rates, and the FOMC has been non-committal regarding raising them at its June meeting. Within this environment, the 10-year U.S. Treasury yield ended the month at 1.82%, up three basis points from the 1.79% level of March 31. Performance of broad-based fixed income indices was on balance higher, with the Barclays U.S. Aggregate Bond Index advancing +0.4%. Global fixed income markets generated solid gains, with the Barclays Global Aggregate ex-U.S. Index advancing +2.0%. Intermediate-term corporate bonds were higher, as the Barclays U.S. Corporate 5-10 Year Index gained +1.3%. The Barclays U.S. Corporate High Yield Index jumped +3.9%. Municipals were also moderately higher, gaining +0.7%.
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