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Monthly Market Update - February 2014

March 11, 2014

Summary
During the month of February, stocks were able to recover their January losses and get the year back on the right track. Developed international large-cap stocks climbed 5.6%, which trumped the S&P 500 Index’s gain of 4.6%. Well-diversified portfolios were able to take advantage of extraordinary returns in alternative investments. Commodities did especially well, surging 6.2% in aggregate. Global REITs also had a great month, rising 5.3%. On the fixed income side, international and intermediate-term bonds returned 0.4%, and Treasury yields were very stable, remaining virtually flat for the month. In sum, global markets performed very well against the backdrop of political turmoil in Ukraine and weaker-than-expected economic data.

Economy
  • The second estimate of fourth-quarter U.S. real GDP came in at 2.4%, lower than the first estimate of 3.2%. While somewhat disappointing, the data includes the near three-week federal government shutdown at the beginning of the quarter. Solid consumer spending and exports were large contributors to the growth.
  • Despite speculation it might alter its tapering plan, the Federal Reserve continued gradually reducing its bond purchases (quantitative easing) indicating it would only change its current plan if the economic climate shifts substantially.
  • Existing home sales dropped 5.1% in January, reaching their lowest levels since July 2012. The drop was influenced by the unseasonably cold weather and rising mortgage rates.
  • Consumer confidence declined slightly in February over concerns with overall business conditions and the job market. The index fell to 78.1, down from 79.4 in January.
  • Job data beat consensus estimates as employers added 175,000 jobs in February, significantly more than the forecasted 149,000.  However, the unemployment rate ticked up from 6.6% to 6.7%, which many blame on the disruptive weather conditions this winter.
U.S. Equity
  • The S&P 500 Index rose 4.6% in February. All sectors experienced positive returns except for telecommunications. U.S. small-cap stocks (Russell 2000 Index) were up 4.7%, continuing to outperform large-cap stocks.
International Equity
  • Developed international large-cap stock markets (MSCI EAFE Index) experienced gains of 5.6%, beating out U.S. stocks. Most countries had positive returns with the exception of Japan, which incurred a small loss of 0.5%.
  • Emerging markets lagged developed markets but were able to recover some of their early year losses, rising 3.3%. Emerging economies are still projected to grow more than the developed world, but a strengthening U.S. dollar has put pressure on some emerging market currencies. Mexico and Russia dragged on emerging markets, declining 3.7% and 2.4%, respectively. On the flip side, Indonesia saw double-digit gains of 10.2%.
Fixed Income
  • As the Fed continued tapering its bond buying program, Treasury securities remained flat. The 10-year Treasury yield ended the month at 2.6%.
  • Fixed income sectors posted positive returns in February, as evidenced by the 0.4% return of the Barclays U.S. Intermediate Government/Credit Bond Index. Investment-grade corporate bonds performed particularly well, returning 1.0% for the month.
Alternatives
  • Commodities (DJ UBS Commodity Index) surged 6.2% in February, beating out most major stock indices. Precious metals rose 7.7%, but are still down 19.1% over the past year. Gold surged for the second month in a row as investors sought a safe haven in response to political turmoil in Ukraine.
  • The S&P Global REIT Index also had a great month, gaining 5.3%. Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for

Supply Management, JP Morgan, Morningstar, JP Morgan, Standard and Poor’s, Wells Fargo, Yahoo! Finance

 Market Returns Chart - One Month as of 2/28/2014

Market Returns Chart - Year-To-Date as of 2/28/2014

Market Returns Chart - One Year as of 2/28/2014

Source: Morningstar Direct. Indices used in above graphs: S&P 500 Index, U.S. Large Value-MSCI U.S. Prime Market Value Index, U.S. Small-Russell 2000 Index, U.S. Small Value-MSCI U.S. Small Value Index, Int'l Large-MSCI EAFE Index, Int'l Large Value-MSCI EAFE Value Index, Int'l Small-S&P EPAC Small Index, Int'l Small Value-S&P EPAC Small Value Index, Emerging Mkts-MSCI Emerging Markets Index, World Stock Index-MSCI All Country World IMI Index, TIPS-Barclays Gbl Infl Linked US TIPS Index, Short-Term Bonds-Ibbotson 1 Yr Treasury Const Mty Index, Interm-Term Bonds-Barclays Interm-Term Govt/Credit Index, Foreign Bonds-JPM GBI Global Ex US Hdg, Global REITs-S&P Global REIT Index, Commodities-DJ UBS Commodity Index. Past performance is historical and does not guarantee or indicate future results. Index returns assume reinvestment of all distributions and unlike mutual funds, do not reflect fees or expenses. It is not possible to invest directly in an index. This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its accuracy or completeness.

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