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Monthly Market Update - March 2014

Summary
Stocks were volatile in March, with concerns over Ukraine and Russia weighing on markets early in the month. Given the volatility, global stock markets (MSCI All Country World Stock Index) were up only 0.4% for the month, but returns across different market segments were mixed. Markets with modest changes included the U.S. and international large-cap stocks, up 0.8% and down 0.6%, respectively. In contrast, U.S. large value stocks (up 2.7%) and emerging markets (up 3.1%) had a fantastic month. On the fixed income side, Treasuries fell slightly while investment-grade corporates and international bonds had gains. In alternatives, commodity returns varied widely, but the aggregate index (DJ UBS Commodity Index) ended the month up 0.4% and global REITs rose 0.2%. Both alternative asset classes are up strongly in 2014 with returns of 7.0% and 7.3%, respectively. Overall, global markets had a good month despite fear over political uncertainty in Ukraine and less than ideal economic data resulting from an uncharacteristically cold winter.

Economy

  • Final fourth-quarter U.S. real GDP came in at 2.6%, a slight increase from the second estimate of 2.4%. 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.
  • Inflation (CPI) for the month of February rose a modest 0.1%, keeping inflation well below the Federal Reserve’s long-term inflation target.
  • Housing starts fell slightly to an annual level of 907,000. This number is still below the estimated 1 to 1.5 million needed to keep the housing market on pace with population growth and replacement housing.
  • Consumer confidence was up substantially in March, reaching its highest point since before the recession. The index now stands at 82.3, up four points from the previous month.
  • The unemployment rate remained steady at 6.7% in March. However, employers added 192,000 jobs, in line with the monthly average over the past year. This continues a trend of slow but steady job growth.

U.S. Equity

  • The S&P 500 Index rose 0.8% in March. All sectors posted positive returns except for consumer discretionary and health care. U.S. small-cap stocks overall fell 0.7%, but U.S. small value stocks gained 1.6%. Value stocks in the large-cap segment led the U.S. for the month of March, surging 2.7%.

International Equity

  • Developed international large-cap stocks posted a small loss of 0.6%. Most countries were actually flat or posted gains for the month, but the larger countries dragged down the index. Germany and Japan declined 1.7% and 1.2%, respectively. 
  • Emerging markets were able to recover from the pummeling they sustained earlier in the year by posting a return of 3.1%, the best performance of all asset classes in March. Emerging markets are now down just 0.4% year-to-date. China and Russia were the only two emerging markets to decline for the month, down 3.7% and 2.4% respectively.

Fixed Income

  • As the Fed continued tapering its bond buying program, Treasury yields rose. The 10-year Treasury yield ended the month at 2.77%, up 17 basis points from the month before.
  • Fixed income sectors in aggregate were fairly benign in March as investors digested mixed economic data as well as the first statement from new Fed Chair, Janet Yellen. The Barclays U.S. Intermediate Government/Credit Bond Index fell 0.3%, while international bonds (JPM GBI Global Ex U.S. Hedged Index) rose 0.3%, and short-term bonds (Ibbotson 1-Yr Treasury Index) remained stable.

Alternatives

  • Commodities (DJ UBS Commodity Index) gained 0.4% in March, ending the quarter with a 7.0% return. Gold gave back some of its February gains, declining 2.6%, and precious metals overall fell 4.0%. However, the index was held up by strong gains in grains and livestock.
  • The S&P Global REIT Index had a small gain of 0.2%, and is now up a whopping 7.3% year-to-date. Since the Fed has assured interest rates will not rise substantially over the next few years, the perceived downside risk for REITs is relatively low, and this has contributed to their strong performance for the year.

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 3/31/2014

Market Returns Chart - Year-To-Date as of 3/31/2014

Market Returns Chart - One Year as pf 3/31/2014

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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