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Monthly Market Update - April 2014

May 16, 2014

Summary

Global stock markets rose modestly in April (up 0.6%) as corporate earnings and accommodative monetary policy offset lingering geopolitical concerns and mixed economic data. The S&P 500 Index hit a new high, posting a gain of 0.7%, with large value stocks being the best performers. U.S. small stocks underperformed for a second consecutive month, dipping 3.9%. International large stocks did particularly well (up 1.4%), while international small stocks and emerging markets were relatively flat. Bonds held steady with intermediate-term bonds up 0.5% and international bonds up 0.6%. TIPS were the best performer in fixed income with a gain of 1.4% and are now up 3.3% year-to-date. Commodities and REITs continued their extraordinary year, gaining 2.4% and 3.6%, respectively. Overall, markets performed well in April further advancing the positive returns earned by globally-diversified portfolios in 2014.

 

 

 

Economy

 

First quarter U.S. real GDP came in at 0.1%, much weaker than the consensus forecast of 1.2%. While disappointing, the shortfall can be attributed at least in part to the unusually severe winter weather. A rebound in GDP growth is expected next quarter as drivers of growth such as personal consumption, housing, and exports should improve as weather returns to seasonal norms.

 

Inflation (CPI) for the month of March increased 0.2%. The year-over-year inflation rate is 1.5%, which continues to stay well below the Federal Reserve’s long-term inflation target of 2.0%.

 

Housing starts rose modestly to an annual level of 946,000. This pace remains below the estimated 1 to 1.5 million needed to keep the housing market on pace with population growth and replacement housing.

 

Consumer confidence fell slightly in April to 82.3, down from 83.9. The index is still relatively high, sitting just below its highest point since before the recession.

 

The unemployment rate fell substantially to 6.3%, down from 6.7% in March. The large drop was due in part to a decline in the labor force participation rate, as the number of people seeking work fell sharply. However, employers added 288,000 jobs during the month, the largest number added in two years.

 

 

 

U.S. Equity

 

The S&P 500 Index rose 0.7% driven by solid corporate earnings results. Most sectors posted positive returns, but financials and consumer discretionary stocks declined 1.5% and 1.4%, respectively. While U.S. large stocks fared well, U.S. small-cap stocks got hit hard, falling 3.9% for the month. However, U.S. small value stocks declined much less (down 1.7%).

 

 

 

International Equity

 

Developed international stocks (MSCI EAFE Index) outperformed U.S. stocks, with international large cap stocks gaining 1.4% and international small cap remaining relatively flat. Except for Japan and the Netherlands, which were down 2.6% and 1.5% respectively, all developed international markets were positive.

 

Emerging markets (MSCI Emerging Markets Index) gained just 0.3%, but returns were volatile among the individual countries. Russia declined the most, down 6.4%, and China fell 2.3%. Brazil had the largest gain among emerging markets, holding up the index with a 3.9% gain.

 

 

 

Fixed Income

 

The 10-year Treasury yield fell to 2.63%, down 14 basis points from the previous month. The Fed continued their path of tapering bond purchases by reducing the monthly amount by $10 billion as planned.

 

The Barclays U.S. Intermediate Government/Credit Bond Index rose 0.5%, while international bonds (JPM GBI Global Ex US Hedged Index) rose 0.6%. Fixed income sectors in aggregate performed well. All sectors were positive, with investment grade corporate bonds providing the highest return (up 1.2%).

 

 

 

Alternatives

 

Commodities (DJ UBS Commodity Index) gained 2.4% and have now returned 9.6% since the beginning of the year. The strong return this year is mainly attributable to the grains and livestock sectors.

 

The S&P Global REIT Index continued its stellar performance, gaining 3.6% for the month and is now up 11.2% 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.

 

 

 

Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar, Standard and Poor’s, Wells Fargo, Yahoo! Finance

 

 

 

 

 

 

 

 

     
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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