Monthly Recap

DECEMBER 2016

Markets in the United States and abroad capped a strong 2016 with gains across indices for the month of December.  The November post-election rally continued through year-end, with all three U.S. equity benchmark indices finishing the year at or near all-time highs.  The Dow Jones Industrial Average advanced 3.3% on the month, the S&P 500 finished up 1.8%, and the Nasdaq Composite rose 1.1%.  International markets also advanced, with the MSCI EAFE Index up 3.66% and the MSCI Emerging Markets Index up 1.32%.  Though international markets displayed strength in December, the gains were not enough to offset a lackluster year which saw both indices hover around flat returns.  The Barclay’s Aggregate Bond Index gained 0.14% on the month while the Barclay’s U.S. Corporate High Yield Index advanced 1.85%.  Though bonds had a positive year, the notable standout was the high yield area, with the index finishing the year up 17.13%.

As we end 2016 and enter 2017 we are on the precipice of an administration focused on lower taxes, less regulation, reforming health care, and creating more jobs.  If these proposed policies come to fruition, the economy may pick up steam heading into 2017, with higher interest rates and stock prices.  As December brought mostly positive news, we await January and the inauguration.  It will be worth watching the start of the Trump presidency, if the Dow Jones Industrial Average can overtake the 20,000 point mark, and what surprises may lay ahead as we start the year. 

NOVEMBER 2016

During the early part of November, market participants were keenly focused on one thing: The United States Presidential Election.  Though many commentators and investors had forecast a victory for Secretary of State Hillary Clinton, Donald Trump secured enough electoral votes to gain a surprising win.  President-elect Trump, winning several key battleground states, including Florida, North Carolina, Pennsylvania, Wisconsin, and Michigan, is scheduled to take office as the 45th President on January 20, 2017.  Markets initially reacted negatively as the evening of the election wore on.  At one point, S&P 500 futures fell 5% in overnight trading.  As markets opened lower, they began to rise the day after the election, with the major equity indices closing higher and rallying through the month, hitting multiple new record highs.

The Dow Jones Industrial Average rose 5.88% on the month with the S&P 500 and the Nasdaq Composite finishing up 3.70% and 2.59% respectively.  Though U.S. equity markets performed well, international and bonds markets fell on the month.  The MSCI EAFE and MSCI Emerging Markets indices were down in November.  Developed international markets lost 1.99% on the month, while emerging markets fell even further, down 4.60% on the month.  The Barclay’s Aggregate Bond Index lost 2.37% as the yield on the 10-year Treasury rose from 1.61 percent at the start of November to 2.37 percent by month end.

Sentiment in the markets has shifted the last few weeks as investors now see the potential for stronger economic growth, higher inflation, increased fiscal spending, lower taxes and less regulation.  With a unified Republican government and the possibility of the aforementioned reforms, many investors are optimistic of increased growth in 2017.

OCTOBER 2016

The final quarter of 2016 began with equity indices in the red, as concerns of weaker economic news and the presidential election held stocks down.  The Dow Jones Industrial Average fell 0.79%, the S&P 500 lost 1.82%, and the Nasdaq Composite finished down 2.27%.  Developed international markets also had a rough month, down 2.05%, though emerging markets, as represented by the MSCI Emerging Markets Index, ended the month up 0.25%.  Fixed-income investments, as measured by the Barclay’s Capital Aggregate Bond Index, finished down 0.76%, with much of the loss attributed to the rise in Treasury yields.  Once again, high-yield credit investments performed well as spreads tightened and demand was seen for income.

Corporate earnings in the Unites States have been a pleasant surprise, though many analysts had lowered forecast prior to earnings releases.  At the end of October, with more than half of the S&P 500 companies having reported earnings, growth rates remained positive, up from the decline expected at the start of the quarter.   Further, employment growth was strong with 167,000 new jobs added in September.  Lastly, the first estimate of Gross Domestic Product for the third quarter came in higher than anticipated, at 2.9%.  This strength shows that the U.S. economy continues to grow, albeit at a slow pace.  

We are now just days away from the upcoming presidential election.   While markets can digest good and bad news in different ways, sometimes the hardest news to price-in is the uncertainty.  That said, positive economic data and stronger-than-expected earnings growth, coupled with more clarity after November 8th, could help bolster the markets into year-end.

SEPTEMBER 2016

After a summer with heightened volatility in equity markets, September brought calmer trading to most indices.  The S&P 500 Index closed the month down 0.1%, the Dow Jones Industrial Average closed lower 0.5%, and the Nasdaq Composite finished up 1.9%.  Both developed and international markets performed well on the month, finishing up 1.3% and 1.2% respectively.  The Barclay’s Aggregate Bond Index finished the month down 0.1%.  Despite mixed economic data, the benchmark 10-year Treasury bond finished mostly unchanged at 1.60%.  High-yield bonds continued their strong year-to-date performance.  Lastly, commodities showed strength during the month, with the price of West Texas intermediate crude oil ending the month at $48.24 per barrel, up 7.4% on the month.

Global central banks and accommodative monetary policies continued to play primary roles in driving both domestic and international markets.  After the Federal Reserve declined to raise rates in September, and trimmed its 2017 rate hike estimates, equity and bond markets around the world rallied.  Economically, there was bullish news seen in labor markets, with lower unemployment claims, reduced duration of unemployment, and higher wages year-over-year.  Conversely, weakness was seen in industrial production numbers and new home sale figures.  

As the fourth quarter begins, the overarching theme of the coming months will be the United States presidential election.  Adding the election to a mix of rising rates and stretched equity valuations, we could certainly see increased volatility heading into year end.

AUGUST 2016

August brought calm to markets after the volatility of June and July, with equity markets mostly flat for the month.  The S&P 500 Index closed the month up 0.14%, the Dow Jones Industrial Average closed up 0.26%, and the Nasdaq Composite finished up 1.18%.  Developed international markets showed small gains as well, with the MSCI EAFE Index up 0.07%.   The notable gainer for the month was emerging markets, with the MSCI Emerging Markets Index up 2.52%.  Fixed Income was mixed on the month, with the Barclay Capital Aggregate Bond Index finishing the month down 0.11% and the Barclay’s Capital U.S. Corporate High Yield Index finishing up 2.09%.  High-Yield bonds, or those that are on the riskier end of the fixed income spectrum, continued to have a great 2016 as investors look for income in this near-zero interest rate environment.

The month of August started with a very strong jobs report, and continued with positive economic data in wage growth, business confidence, and industrial production.  New single-family home sales, a good barometer for housing and the overall economy, continued to grow, though still below their pre-2008 all-time highs.  At the Jackson Hole Economics Policy Symposium, Federal Reserve Chair Janet Yellen spoke in positive terms about the U.S. economy, lending to the belief that there may be an interest rate hike sooner than later.  Conversely, the Bank of Japan and the European Union continued their quantitative easing programs.  

As the summer ended on a relatively quiet note, we question whether this calm can continue.  With light trading in August, we expect the volume to pick up in September.  Though the U.S. economy is showing signs of strength; the Federal Reserve, emerging market growth, oil prices, and the upcoming presidential election could add volatility to markets in the coming months.

JULY 2016

After a dramatic month of June which saw Britain vote to leave the European Union, coupled with a subsequent steep fall in equities and currencies, the market rebounded nicely and continued the ascent through July.  For the month, the S&P 500 finished up 3.69%, the Dow Jones Industrial Average up 2.94%, and the Nasdaq Composite up a strong 6.65%.  Bonds showed continued support, with the Barclay’s U.S. Aggregate Bond Index up 0.63%, and the Barclay’s U.S. Corporate High Yield Index continuing its strong run, up 12.01% year to date.

Better than anticipated corporate earnings helped to lift equities, in addition to speculation that interest rates in the United States will remain “lower for longer.”  Mixed economic data for the month gave further credibility to the belief that a rate hike would be put on hold until later in 2016.  Housing data and solid manufacturing numbers showed continued strength.  Conversely, we saw U.S. economic data disappoint to the downside, rising just 1.2% for the second quarter.

Lastly, an interesting point of note is that during the month, the 10-Year benchmark Treasury note dipped to 1.37%, the lowest ever recorded since database recordkeeping.  With low global growth, the Federal Reserve being cautious on rate hikes, and continued foreign demand for U.S. debt, record low sovereign bond yields could continue to persist.

JUNE 2016

June was a month of dramatic swings in the markets as the Brexit vote, Britain’s vote to leave the European Union, took center stage.  Despite a dramatic pullback following the vote, markets were able to find footing and recover towards the end of the month, finishing with gains across some indices.  The S & P 500 finished the month up 0.26%, the Dow Jones Industrial Average up 0.95%, and the Nasdaq Composite fell 2.06%.  International Indices were mixed, with the developed markets index down 3.36% as a result of the Brexit vote.  MSCI Emerging Markets were a standout finishing the month up 4.00%.  Lastly, bonds had another good month, with the Barclay’s U.S. Aggregate Bond Index up 1.80%.

As mentioned, the key story for the month was the vote in Britain to leave the European Union.  Though the odds were for a “stay” vote, the leave vote was the winner by a 52%-48% margin.  These results, which were witnessed on a Thursday evening, threw markets into a tailspin the following trading day.   Japanese and European markets were down between five and ten percent, with the Dow Jones Industrial Average losing north of 600 points.  After a weekend to recover, markets traded down again the following Monday, then slowly recovered their losses as the week progressed.

As a result of the geopolitical turmoil, these events give further credence to the belief that the Federal Reserve will take a longer pause before any further hikes in interest rates.  As a result, U.S. Treasury bond yields fell to all-time lows.  Additionally, economic data showed modest improvement throughout the month.  GDP, manufacturing data, and consumer spending all rose, though after a weak May jobs report, all eyes will be on the June employment numbers.

MAY 2016

Market indices finished stronger in May across most asset classes, as year-to-date gains continued after a poor January.  The S&P 500 Index rose 1.5%, the Dow Jones Industrial Average gained 0.1%, and the Nasdaq, a laggard in April, posted the strongest gains up an impressive 3.6%.  Technical levels showed support for all three key indices as they traded above their 200-day moving averages.  International markets, both developed and emerging, saw declines in the month, with the former finishing down 2% and the latter down 3.7%.  The Barclay’s Aggregate Bond Index was up fractionally, finishing the month with a 0.03% gain.  High-yield bond investments continued their strong 2016, posting gains of 0.62% for the month.  Lastly, the benchmark 10-year interest rate finished the month at 1.84%, with little change on the month.

May’s economic data was mixed, further muddling the picture as to when the Federal Reserve may continue to increase interest rates.  Weak numbers were seen in manufacturing and capital investment, while consumer demand and housing sales both surprised to the upside.  After digesting the data from the first few months of 2016, the Federal Open Market Committee’s meeting minutes showed that they believe employment to be strong and inflation to begin heating up.  This left investors questioning whether a June or July rate hike is coming.  The Federal Reserve appears to be cognizant of the fact that the United States is in the process of monetary tightening, while the rest of the world continues to loosen monetary policy and provide fiscal stimulus. 

In conclusion, with the Chinese economy reacting less favorably to government stimulus and the vote in June on Great Britain’s exit from the European Union, uncertainty lingers.  The United States’ improving economy could provide investors an alternative to international exposure during the coming summer months.

APRIL 2016

Markets in the United States finished mixed in April, after a strong start to the first two weeks of the month.  The Dow Jones Industrial Average finished up 0.62%, the S&P 500 gained 0.39%, and the Nasdaq Composite declined by 1.89%.  Though earnings expectations were generally lower across the board, most large companies posted strong numbers, giving the Dow Jones and S&P 500 a boost.  Globally, international indices posted another strong month, with the developed international index finishing up 2.90% for the month.  The Barclay’s Capital Aggregate Bond Index finished the month up 0.38%, with the high yield index even stronger, rising almost 4%.  

After a volatile first quarter, markets did calm during April.  The first quarter of 2016 saw growth in gross domestic product (GDP) in the United States, albeit slowly.  The GDP report showed growth of 0.5%, below consensus forecasts of 0.7%.  Though the growth number came in light, employment figures, a key metric of future consumption, were strong for the month.  The economic data released in April showed a gain of 215,000 jobs, with wage growth rising 0.3%.  Whether this brighter employment picture translates into greater spending will be seen in the coming months.  

Lastly, at the Federal Reserve’s April meeting, the committee decided to hold short-term interest rates steady, leaving their target range at 0.25% to 0.50%.  As investors speculated there would be no move at the April meeting, markets reacted with little surprise or change.   The Federal Reserve reiterated their prior commitment to rely on current economic data as it is released to determine if and when they will continue to raise rates.

MARCH 2016

After a rocky start to the year, markets rebounded in March as confidence came back to markets in the United States and abroad.  All three major U.S. equity market indices finished with strong gains.  The Dow Jones Industrial Average finished up 7.22%, the S&P 500 finished up 6.78%, and the Nasdaq Composite gained 6.94%.  The March rally erased the previous negative year-to-date returns for the Dow Jones, S&P 500, emerging markets, and commodity markets.  Globally, developed and emerging markets posted solid gains for the month.  On the fixed income side, The Barclay’s Capital Aggregate Bond Index was up 0.92%, continuing a strong start to the year.

There were multiple factors that precipitated the rise in markets, most notably the ascent of crude prices during the month.  In the face of record inventories, crude prices began to steadily rise as some investors saw possible production falls in the future and a bottoming out.  After trading lower than $27 per barrel to start the month, West Texas Intermediate crude oil ended the month trading at $38.34 per barrel.  To compound the positivity during March, the strength of the U.S. dollar took a breather as expectations for a Federal Reserve interest rate increase have moderated.  Further, strong consumer confidence readings provided markets optimism for continued solid consumption from the U.S. consumer.

As we enter the second quarter, we see most markets generally flat or marginally higher year-to-date.  We continue to monitor the quantitative easing programs from the Bank of Japan and the European Central Bank.  Further, with high-yield bonds and the energy sector assuming their direction from the price of crude oil, we question if oil prices will trade range-bound for a period.   Lastly, as corporate earnings season begins with muted expectations, investors and traders alike wonder if earnings can surpass reasonably low forecasts.  Should this be the case, equity markets may continue their strong March run.

FEBRUARY 2016

After a dismal start to the year, U.S. markets stabilized in February, with the Dow Jones Industrial Average up 0.75%, the S&P 500 Index down fractionally at 0.13%, and the Nasdaq down 1.03%.  International equity markets continued their January sell-off, with losses at 1.83% for the MSCI EAFE Index.  The Barclay’s Capital Aggregate Bond Index was once again a beneficiary of choppy equity markets, finishing the month up 0.71%.  The second half of February saw markets rally off their lows, hopefully a positive sign heading into March.  

West Texas Intermediate (WTI) crude oil briefly traded below $30, while ending the month north of $30 at $33.75 per barrel.  The market continues to follow the day-to-day movement of oil prices with sharp advances and declines.  On the economic front, weaker data and heightened equity volatility have many now wondering if and when the Federal Reserve will continue to hike interest rates.  With global growth a concern and deflationary pressures in commodity markets, The Federal Reserve struck a dovish tone in their meeting notes for the month.  Members of the Federal Reserve also noted that if we see a tightening in the credit market, this could be a strong drive towards decreasing the need for a rise in short-term interest rates.

Lastly, although the United States is growing, we continue to watch the European Central Bank, The Bank of Japan, and the Chinese Central Bank continue their accommodative course.  The Bank of Japan is now using negative interest rates to spur growth.   For an interesting fact, to further demonstrate the lack of growth and inflation around the world, we now see more than two-thirds of global government bonds yielding less than 1%.

 

JANUARY 2016

The unanswered questions and global uncertainty that plagued asset classes in 2015 continued at the start of 2016, with stocks around the globe under pressure.  U.S. markets had their worst January since 2009, with the Dow Jones Industrial Average down 5.39%, the S&P 500 Index down 4.96%, and the Nasdaq, the leader in 2015, down 7.82%.  International equity markets fared little better, with the MSCI EAFE Index of developed markets down 7.23% and the MSCI Emerging Markets Index down 6.48%.  Fixed Income investments performed well for the month, as investors flocked to the safety of sovereign bonds.  The Barclay’s Capital Aggregate Bond Index finished the month up 1.38%.

Though the unemployment rate continues to hover around 5% and job creation is strong, the fourth quarter Gross Domestic Product showed growth of just 0.7%, with personal consumption slowing.  Though consumption did fall, consumer confidence and savings rates rose during the month.  

Primary factors for the January decline arose from a global perspective.   Concerns about China and the fragility of their markets and banking sector, deflationary worries in Europe, and Japan’s announcement of negative interest rates all gave investors reason for concern.  Couple these issues with high equity valuation and continued energy weakness, and we are watchful to see if January’s volatility continues as we progress through the first quarter.  In the face of international uncertainty, optimism remains as the U.S. economy continues to grow, albeit at a modest pace.  If economic data and growth can continue to remain firm, the U.S. may be a bright spot going forward in 2016.



DECEMBER 2015

December closed out a volatile year in markets, with a late-summer correction, a subsequent rise in October, and a dip in equity markets during the final month of the year.  Overall, the S&P 500 fell 1.8% during the month, the Dow Jones Industrial Average fell 1.7%, and the NASDAQ composite fell 2.0%.  The S&P and Dow Jones ended 2015 essentially flat, while the NASDAQ did finish marginally higher.  The Barclay’s Capital Aggregate Bond Index finished the month down 0.32% yet was able to return meager gains, up 0.55% on the year.  The continued volatility in markets, both equity and fixed income, contributed to these tepid returns.  

The Federal Reserve, after years of lowering rates and staying at zero, deemed economic activity and inflation considerations sufficient to raise interest rates for the first time in nearly nine years.  The Federal Reserve’s target rate is a catalyst for everything from floating interest rates to home-equity loans.  Though this target rate rose, many expect the effect to be felt little in the economy as rates are still near all-time lows.  Further, economic numbers continued to show improvement at a gradual pace.  For the year, there were 2.6 million jobs created with unemployment around 5.0%.  Savings and wage growth have risen throughout the year, and if these consumers start spending, it could be a headwind for economic growth going forward.

December continued the same theme and issues from throughout the year, most notably, slow economic progress, weakness in the oil and commodity sectors, and a market looking for direction.   Going forward into 2016, we will continue to keep an eye on the Federal Reserve action, corporate earnings and valuations, China’s financial and economic growth, and geopolitical turmoil.   


NOVEMBER 2015

Following a volatile third quarter, and sharp rise in October, domestic and international equities traded relatively flat for the month, albeit up modestly.  The Dow Jones Industrial Average was up 0.71% and the S&P 500 rose 0.30%.  The Nasdaq climbed 1.09% further solidifying the Nasdaq as the clear leader in 2015.  Once again, as was seen in October, small caps had a strong month suggesting investors risk appetite remains positive.  Further, financials gained in November while utilities and telecoms fell.  Investors may believe that if and when the Federal Reserve raise rates, financials will benefit while higher dividend paying utilities may trade lower.

The Barclay’s Capital Aggregate Bond Index was down on the month, finishing 0.26% lower.  High-yield Indices, which generate a higher coupon yet higher risks, saw the index down 2.22%.  Lastly, developed and emerging markets indexes were down 1.56% and 3.96% respectively. 

Investors wait for the Federal Reserve’s December meeting, with the probability on the table of the first interest rate hike in years.   If the Federal Reserve is on the cusp of raising rates, we are eager to see how this will affect both shorter and longer-term bonds.  As investors and traders look further out on the curve, and lend their money for longer periods of time, inflation and economic growth play a much larger role than the Federal Reserve’s decision to raise or lower rates.

On the economic front, Gross Domestic Product for the third quarter was revised upward to 2.1%.  Compounding this stronger number with the addition of 271,000 jobs created and stronger wage growth, there is reason for optimism.  As has been the case in 2015 though, caution remains when analyzing weakness in consumer spending and housing data.

As we enter the final month of 2015, we will look back on a year that has, so far, shown mixed to lower returns among many asset classes.  Oil and gold are down on the year, equities fight for direction, and fixed index returns have been meager.   If December provides direction, we will be eager to see if this carries forward into 2016.


OCTOBER 2015

Following a difficult third quarter, markets in the United States and abroad responded strongly with gains across most asset classes.   Historically, October has been a month marked by volatility, but this year October displayed strength both home and abroad.  The Dow Jones Industrial Average was up 8.59%, the S&P 500 rose 8.44%, and the Nasdaq climbed 9.38% to go positive for the calendar year.  Small-cap stocks rose 5.63%, with every equity sector advancing, highlighted by basic materials, energy, and technology shares.  The U.S. dollar continued it’s ascent against major international currencies while commodities showed positive returns.  Fixed Income investments had a challenging month, as investors sold bonds in anticipation of a rate increase.  The Barclay’s Capital Aggregate Bond Index returned 0.02% for the month.  

During the Federal Reserve’s October meeting, they reiterated their belief that the economy continues to improve, and postured that there may be the first rate increase seen since 2008.  Ironically the past few years, when the Fed has mentioned rising rates, this has been met with selling, though this latest round produced optimism in markets.  Many investors and traders now see a rate hike as taking uncertainty out of markets and adding further stability.  

From an economic and earnings perspective, we once again see a very mixed picture.  Corporate earnings have been received well, but the caveat being many forecasts were lowered for companies on the top and bottom line.  Revenue figures, a key metric of consumer demand for products, have been less than stellar.  Although the services sector and consumer confidence both displayed strong readings in October, we were again met with a weak employment report and disappointing wage growth.  

With two months left of 2015, the market continues to look for direction.  After a weak third quarter, and strong October, most markets are still a few percentage points away from flat.  We will be eager to see if November can continue the strong performance as seen in October with markets rising towards the end of the year.

SEPTEMBER 2015

Following a decidedly negative August, U.S. markets struggled to rebound, pushing benchmarks further negative for the year.   The Dow Jones Industrial Average fell 1.5%, the S&P 500 Index fell 2.6%, and the Nasdaq Composite fell 3.3%.  International markets continued displaying weakness, with the MSCI EAFE Index down 5.08%.  The Barclay’s Aggregate Bond Index was a lone bright spot with resilience in the face of negative equity markets.  This bond index was up 0.68 in September, though high-yield indices were down as a result of weakening credit conditions in the energy market.  

A major story during the month was the Federal Reserve holding interest rates steady at 0%.  Though many economists and investors thought we might see a .25 basis point rise, the Federal Reserve, citing international volatility as one factor, did not end up moving rates.  Some were surprised that international events would be included in the Federal Reserve’s decision, as their two-fold mandate includes monitoring employment and inflation data.  

From an economic standpoint, the data was mixed during the month to lend further credence to the theory that the U.S. economy may not be as strong as some might believe.  Though new home sales continued to grow at a strong rate, existing home sales, retail sales, and employment figures all fell short of expectations.

Entering the fourth quarter, most domestic and international markets are down for the year; some only a few percentage points lower and others by double digits.  Looking back over the past few months, investors may witness continued volatility throughout the rest of the year, with the hopes markets begin to stabilize and rise as we enter the fall months.

AUGUST 2015

The month of August presented one of the most difficult and volatile environments for domestic and international markets in quite some time.  Slowing global growth, with the Chinese economy and stock market at the forefront, cause markets around the world to fall.   The Dow Jones Industrial Average fell 6.20%, the S&P 500 Index fell 6.03%, and the Nasdaq Composite fell 6.70%.  International markets fell even further with developed international markets down 7.36%.  The Barclay’s Aggregate Bond Index lost just 0.14% as some investors flocked to bonds as a safe haven.  

The major story of the month was China devaluing its currency, a surprise move many did not anticipate.  The move allowed their currency to float more freely against international currencies, which stands in contrast to the previous policy of a tighter pegged exchange rate.  This may be seen as a proactive measure toward keeping domestic growth strong; it will now be less expensive for China to export their products.  

On the domestic front, although GDP did rise in the second quarter, this uptick may be simply a rebound from the bad weather of the first quarter.  Most forecasters are still speculating around 2% GDP growth for the U.S. in 2015.

Lastly, we are awaiting the Federal Reserve’s September meeting which will hopefully provide color on the state of the U.S. economy and when the Fed will start raising interest rates.

JULY 2015

Investors who were able to stay in the market during the volatile month of June, with both China and Greece taking center stage, were rewarded with equity markets that performed quite well.  The S&P 500 index finished the month up 2.10%, with the Nasdaq performing even better with a 2.84% return.  The laggard, though still positive, was the Dow Jones Industrial Average, finishing up 0.52%.  One factor accounting for the performance of the Dow Jones was the continued weakness in energy stocks.  

Following the lead of U.S. equity markets, developed international markets finished the month up 2.08%, though the emerging market index finished down 7.26%.  The Barclay’s Capital Aggregate Bond Index finished the month up 0.70%.  

One notably bright spot during the month was corporate earnings.  Though earnings were forecast to decline, the overall decline of most major companies was less than had been forecast and was a primary contributor to the solid month in equities.  Further, U.S. markets were able to weather the storm from a severe downturn in the Chinese markets.  Coupling the action in Chinese markets with further weakness in commodity prices, the fact that neither of these issues have led to systematic dislocations is a positive sign for the stability of the United States economy and markets.  

We continue to see positive signs from economic data in the United States and speculate when the Federal Reserve will begin raising interest rates.  With the U.S. markets still the most solid in the world, if heightened volatility around the globe continues, U.S. markets may continue to see strong inflows and remain an anchor of stability.


JUNE 2015

The month of June was a difficult month for U.S. equities, with geopolitical and Eurozone risks taking center stage.  For the month, the S&P 500 Index was down 1.94%, the Dow Jones Industrial Average was down 2.06%, and the Nasdaq Composite was down 1.64%.   Markets were quiet as the month began and progressed, but once the budget crisis in Greece worsened and the Chinese market experienced severe volatility, markets began to sell off.  In addition to U.S. stocks selling off, the MSCI EAFE Index was down 2.83% and the Barclay’s U.S. Aggregate Bond Index was down 1.09% for the month.

Another story that rattled markets, especially domestically, was turmoil in the Puerto Rican debt markets.  Municipal bonds sold off as Puerto Rico shared they were unable to repay public debt obligations without restructuring.  Though many believe the Puerto Rican problem to be contained, shocks were felt in the United States municipal debt markets.  

Though we saw strong economic data throughout the month, notably in labor market figures, consumer confidence, and personal spending, international turmoil overtook domestic positivity.  Negotiations between Greece and its creditors led to a sharp selloff in European equities.  Though Greece’s gross domestic product is just a fraction of the larger Eurozone, investors feared contagion to other periphery countries in Europe.  

What may be a more significant story for the global economy is the volatility in China.  The Shanghai markets entered bear territory in June, as fears of a slowing China and an overheated stock market weighed on traders’ minds.  While Greece’s credit risks present a concern, China, the second biggest economy in the world, will be much more of a catalyst for the direction of trading as we progress through the summer months.

MAY 2015

As we progress through the second quarter of 2015, the month of May saw U.S. equity markets peak, then pull back, while still finishing the month positive.  The S&P 500 Index was up 1.29% for the month, with the Dow Jones Index up 1.35%.  The Nasdaq Composite, the leader so far in 2015, outpaced its counterparts, up 2.76% for the month.  Year-to-date, the Nasdaq  is up 7.57%, more than double the S&P 500 and Dow Jones Indices.  The Barclay’s U.S. Aggregate Bond Index finished the month down 0.24%, though still in positive territory for the year up 1.00%.  One major index performing well this year is the MSCI EAFE Index, a stock market index designed to measure the equity performance of developed markets outside the United States.  This index, though volatile the past year, has returned 8.60% year-to-date.

Despite news that the first quarter of 2015 showed a slowdown in the U.S. economy, cautious optimism remains.  Many observers viewed this year’s first quarter as a mirror of 2014 - snow and below normal weather conditions hampering growth with a robust second quarter recovery.  We are seeing inflation numbers rise, U.S. employment figures strong, an accelerating housing market, and a rebound in oil prices.  Further, international markets are witnessing many central banks cutting interest rates in an attempt to spur economic activity and inflation.  Domestically though, we await word and direction from the U.S. Federal Reserve on when rates will rise.  With the federal funds rate remaining at all-time lows for the better part of seven years, markets and investors are eager and cautious to see how markets react if and when the Federal Reserve moves.

APRIL 2015

Undeterred by somewhat muted earnings and relatively disappointing economic data, U.S. equity benchmarks reached all-time highs during the month of April, though falling back a bit and ending the month modestly higher.  The Dow Jones Industrial Average gained 0.45%, the S&P 500 index finished the month up 0.96%, and the Nasdaq, the leader year-to-date among the major averages, gained 0.83%.  The bond market, measured by the Barclay’s Aggregate Bond Index, was down 0.36%, with the key 10-year U.S. Treasury note yield rising to 2.05% in April.

With global financial concerns prevalent, notably slowing Chinese growth and Greek-Eurozone issues, stocks were able to rise thanks to better than expected earnings.  Though many investors braced for first quarter earnings lower than the fourth quarter of 2014, the decline for the majority of companies was not as severe as forecasted.  Many companies, while continuing to underperform on a quarter-over-quarter basis, saw moderate earnings decline.  Stocks also showed resilience in the face of a stronger dollar, reduction in business spending, and a weak energy sector.

As we begin the second quarter, strong job creation, wage gain, and a consumer that was dormant in the first quarter give us cause for optimism going forward.

March 2015

After January and February brought large moves up and down to equity markets, March brought more stability to trading, though most indices did finish the month lower.  The S&P 500 Index finished the month down 1.58%, with the Dow Jones and Nasdaq losing 1.85% and 1.26% respectively.  A lone bright spot for equities in the month was the Russell 2000 Index, a composite of small-cap stocks.  This index bucked the trend and gained 1.74% on the month.  Though continued weakness in the energy sectors weighed on high-yield bond indices, the Barclay’s Aggregate Bond Index showed resilience rising 0.46% for the month.  The yield on the 10-year U.S. Treasury, a key benchmark of U.S. government interest rates, moved lower as the month progressed on economic growth concerns.

Many key economic reports and readings on the economy were pessimistic during the month.  The ISM index, a key metric of manufacturing activity, fell, with weakness in new orders contributing to the pessimism.  Further, housing starts and factory orders underwhelmed investors looking to get a pulse on U.S. economic health.  Lastly, personal spending also dropped during the month, driven by a decline in retail and auto sales.  On the positive side, stocks and bonds showed a sharp rise after the Federal Reserve removed the term patient from its statements.  This led investors to speculate that the Fed is wary of increasing rates and may hold off until later in 2015 to begin raising rates.  With bond and stock prices at near record highs, we expect volatility in the second quarter to remain elevated and await first quarter earnings to shed light on the market’s next move.

FEBRUARY 2015

After a difficult January, markets rebounded in the United States with strength across asset classes, to bring equity markets positive for the year.  The Dow Jones Industrial Average rose 6.01%, the S&P 500 rose 5.75%, and the Nasdaq gained 7.08%.  A key contributor to the strength seen in equity markets for the month was corporate earnings which surprised to the upside, despite continued downward pressure in energy markets.  Both international and emerging markets showed strong gains on the month, aided by European equities.  With the European Central Bank continued bond-buying program, equities in Europe reached new highs.

Fixed income investments were the notable exception to strength in the month with the Barclay’s Aggregate Bond Index down 0.94%.  Rates rose and bond prices declined, as many nervously await Janet Yellen and the Federal Reserve.  Speculation is that the Federal Reserve begins to raise interest rates in mid to late 2015.  While analysts and investors don’t believe rate increases will be undertaken as quickly and dramatically as in the past, many question how markets will react to rising rates.  

While global growth continues to progress, we are steadfast in the belief that the United States continues to present some of the best opportunities in the world.  With low oil prices and low inflation, coupled with a strong U.S. dollar and robust job market, many conditions exist for the United States to once again lead the world in 2015 as the engine for global growth. 

JANUARY 2015

Markets in the United States began the year on a down note, with fixed-income investments the notable exception.  The S&P 500 declined 3%, the Dow Jones Industrial Average fell 3.58%, and the Nasdaq fell 2.13%.  Fixed Income investments bucked the trend, with the benchmark Barclay’s Aggregate Bond Index up 2.10%.  The 10-year Treasury yield, a key overall metric of strength in the bond market, began the month yielding 2.12% and ended the month yielding only 1.68%.  There are many reasons to postulate why yields are at such low levels.  One is the fear of slowing global growth and deflation, with another being the ‘flight to safety’ trade.  Often, during times of geopolitical or market distress, investors rush to highly liquid, ultra-safe asset classes.  At present, there is no greater asset class displaying these dual characteristics than United States treasury bonds.  

From an international perspective, European equities posted solid gains for the month.  Investors pushed markets to new highs in Europe after the European Central Bank proposed a new stimulus program to generate growth and inflation.  Oil prices, one of the major themes of 2014, continued their descent, down 9.4% in the month.  Oil fell to its lowest level in six years before rallying on the last day of the month.  Further safe-haven buying was seen in gold prices, which ended the month up 8%.

We continue to see fundamental strength in the U.S. economy with positive data, growing corporate earnings, and dollar strength.  Given these reasons for optimism, we are cautious but positive for domestic markets as we begin 2015. 

DECEMBER 2014

The final month of the year was one of polar opposites when looking at the first two weeks of December compared to the latter.  Stocks began the month showing weakness across the board with the steady downward pressure of oil prices weighing on markets.  Add in the international currency turmoil from Russia raising rates 6.5% in one day, and we saw a market in the crosshairs of finishing an otherwise strong year very weak.   The Federal Reserve’s meeting and language, one supporting a dovish, more patient stance towards raising rates, got the markets back on solid footing and we continued to push higher as the month progressed.  We finished with the Dow Jones off 0.12%, the S&P 500 down 0.25%, and the Nasdaq losing 1.08%. Once the Federal Reserve reiterated their accommodative stance, bond yields fell, causing the Barclay’s Aggregate Bond Index to finish the month up 0.09%.  

The price of crude oil fell nearly 20% in the month of December, capping a year which saw oil fall from triple-digits to the low $50 range.  While this will certainly be a positive for the U.S. consumer, this decline contributed to widespread losses in fixed income and equity investments related to the energy markets. 

United States economic numbers continued to improve in December, showing a gain of 321,000 jobs in November, the tenth straight month the U.S. has added over 200,000 jobs.  While these numbers show job growth, we are cautious on tepid wage inflation and the overwhelming number of part-time jobs, as opposed to full-time employment.  We are still seeing strong manufacturing numbers, the housing market remaining positive, and the dollar rising against its international counterparts.   Focusing on positive economic data and solid corporate earnings, it gives us optimism that U.S. markets will remain at the forefront of most investor’s minds heading into 2015.

NOVEMBER 2014

November once again brought all-time highs to U.S. equity markets, with stocks rebounding sharply from the mid-October sell-off.   The S&P 500 set five new records in the month, with the index closing up 2.69%, the Dow Jones finishing up 2.86% and the NASDAQ rising 3.47%.  A continued trend, which has shown itself throughout the year, once again brought strength to larger, blue-chip stocks.  Though equities showed strength during the month, oil prices continued a precipitous decline.  While the factors contributing to this decline range from the strength of the U.S. dollar to OPEC holding steady on production, lower prices at the pump help most Americans in strengthening an economy which is predicated on more than two-thirds consumption. Oil prices were not the only close watched metric to drop, as the 30-year Treasury note fell below 3%.  Falling yields of government debt helped the Barclay’s Aggregate Bond Index rise 0.70% for the month.  A 30-year Treasury note under 3% is of importance as it shows traders and investors anticipating muted inflation. 

Economic data in the United States and the underlying fundamentals of the consumer continue to show resilience.  U.S. growth for the third quarter was revised upward to 3.9% with the labor market continuing to post strong job growth numbers.  This job growth coupled with lower prices at the pump should give investors cause for earnings optimism as the year ends and 2015 begins.

OCTOBER 2014

The month of October presented one of the most tumultuous months of the year with volatility indices rising to levels not seen since 2011.  The early part of the month was dominated by headlines of slowing global growth fears, especially in Europe, speculation of Ebola spreading, and a steep decline in oil and energy prices.  All these factors contributed to markets experiencing a sharp decline for the early part of the month.  Surprisingly though, markets started to rebound and ended the month positive, with the S&P 500 up 2.44% , the Dow Jones positive 2.16%, and the Nasdaq up 3.10%.  The Barclay’s Aggregate Bond Index finished the month up 0.98%.  During October 15th, a day that saw the Dow Jones trade down more than 450 points at its intra-day low, the 10-year U.S. Treasury yield traded below 2.00%, a consequence of the flight to risk off asset classes.  The 10-year note began the month at a 2.52% yield, but with the second-half recovery, ended the month at 2.35%.  Though yields came off their lows, we continue to watch rates trade well below historical norms for an economic recovery with healthy inflation.

On October 29th, the Federal Reserve officially ended their Quantitative Easing program, which was anticipated by investors and analysts alike.  Now that the Q.E. program has drawn to a close, attention turns to when the Federal Reserve may begin to raise the Federal Funds rate, thereby affecting short-term interest rates.  Many see mid-to-late 2015 as the inevitable period, but we will continue to monitor rate changes as they will undeniably impact the fixed income markets.  With conditions in the U.S. remaining healthy, coupled with strong corporate earnings and job growth, we anticipate the United States remaining one of the most sensible investment landscapes in the coming months.

SEPTEMBER 2014

The fall season began with a negative month for U.S. markets, though the losses were mild.  The S&P 500, Dow Jones Industrial Average, and Nasdaq were all red, down 1.40%, 0.23%, and 1.90% respectively.  The Nasdaq continues to outpace the S&P 500 and Dow Jones year-to-date.  One interesting note when reviewing current equity performance is that large, blue-chip companies have begun to outperform mid to smaller sized companies.  Some analysts speculate that historically this predicts the end of a bull run as investors start to trim their positions in more rapidly-growing, though riskier companies.  

Fixed income investments, measured by the Barclay’s Aggregate Bond Index, suffered a small percentage decline in the month, down 0.68%.  The standout to the downside for September was international markets.  The MSCI Emerging Markets Index was down 7.59% for the month with some of these losses attributed to slower growth in China, a strengthening U.S. dollar, and continued economic troubles in Europe.  The European Union, a political-economic grouping of 28 member states, has been aggressively attempting to spur growth and inflation through monetary easing, a path the United States has traveled the past few years.  

Lastly, we continue to monitor geo-political and international risks.  The Ukrainian situation with Russia, though a cease-fire has been agreed upon, continues to present a moderate level of risk to markets should the situation flare up again.  Additionally, with rise of the ISIS group in Iraq and Syria, we are seeing an already tense area become much more unstable.  We will continue to monitor these risks and headwinds heading into the fourth quarter.

AUGUST 2014

August highlighted the end of summer by delivering the largest stock market gains since February.  Equity markets in the United States were up across the board with the Russell 2000 Index, an index of smaller cap stocks, pacing the advance for an almost 5% gain.  The Dow Jones was up 3.60% and the S&P 500 and Nasdaq composite were up 4.00% and 4.12% respectively.  Stocks continued to reach all-time highs as investor sentiment and bullishness has marched on in the face of global turmoil.  

With continued economic strength and job creation, in addition to strong housing and manufacturing numbers, many investors now see the Federal Reserve ending their bond buying program in the fall of this year.  Further, many have focused their attention on when the Fed will increase interest rates.  The consensus of forecasters is 2015; though seasonal timing is still widely debated.

As has been a constant theme throughout the year, investors continued to purchase U.S. government bonds, seen as one of the safest investments in the market.  The 10-year Treasury note, while starting the year yielding 3%, touched 2.35% in late August.  Though interest rates tend to fall when investors flee to safe haven assets, this strength in government bonds in the face of an expanding economy has continued to puzzle many analysts and investors alike.

JULY 2014

July was a tough month for the major indices in the United States, highlighted by increasing and widespread global unrest.   There were numerous geopolitical events that caused volatility in the markets, including a Malaysian Airlines aircraft shot down over Ukraine killing 300 people, economic sanctions against Russia, and the resurgence of the conflict between Israel and Hamas.  The S&P 500 Index closed down 1.38%, the Dow Jones Industrial Average dropped 1.44%, and the Nasdaq declined 0.87%.  Fixed Income investments were also a laggard for the month with a decline of 0.25% in the Barclay’s US Aggregate Bond Index.  With continued global turmoil, we may expect a flight to safety to push US Treasury yields lower.

We saw continued strength in corporate earnings for the month of July with more than three quarters of reporting companies beating earnings estimates, while two-thirds had beaten sales forecasts.  We also continue to see economic reports indicating recovery and expansion.   Early in the month, the US employment reports showed the creation of 209,000 jobs, exceeding many analysts’ expectations.   These strong numbers were a catalyst for keeping the unemployment rate steady at 6.2%.  Additionally, retail sales and consumer confidence data were positive, both key bellwethers for a resilient US consumer.

JUNE 2014

The summer began on a positive note for U.S. equities markets with a strong month for stocks, an improving global economic outlook, supportive monetary policy, and an inclination to overlook global turmoil in the Middle East.  The S&P 500 finished the month up 2.07%, while the Nasdaq was the standout up 3.01% and the Dow was the laggard, up 0.75%.  The Barclay’s Aggregate Bond Index was barely positive, but it’s 0.05% June return increased its year-to-date return to 3.93%.  

Two key economic indicators during the month were first quarter Gross Domestic Product (GDP) and job growth.  The economic surprise of the month was certainly GDP.  Though many analysts had called for a decline of around 1% due to winter weather, the U.S. saw a decline of 2.9%.  On a positive note, many believe this first quarter to be an outlier and expect second quarter numbers to be much more robust.  On the jobs front, we have now had four straight months of 200,000 or more jobs created.   

With markets continually reaching all-time highs, we are pleased with the appreciation though continue to hold a cautious stance going forward the next few months.

MAY 2014

In May, we saw the continued growth, albeit modest, of the US economy.  The Dow Jones Industrial average finished the month up 1.19%, the S&P up 2.35%, and the Nasdaq leading the way, up 3.11%.  Reversing a pattern we have seen throughout the early part of the year, growth stocks were the catalyst for leading the Nasdaq up, while value stocks took a breather.  A primary reason for the upward trend was positive earnings growth.  Earnings for the first quarter came in significantly better than the decline anticipated at the start of earnings season.  Additionally, The Barclay’s Global Aggregate index returned 0.59% to represent a positive month for the global bond market.

An overarching theme which we have watched to determine the traction and viability of the U.S. economic recovery has been jobs and job creation.  Both of these areas showed strength in May to give further credence to the idea that we are currently in the midst of a stronger recovery.  May showed strong job creation and unemployment claims set consecutive post-recession lows.  With more than two-thirds of our economy predicated on the consumer, the continued creation of new jobs should provide the income and spending needed to continue growing at a desired pace.

APRIL 2014

US equity markets saw mixed results in April, with large-cap stocks rising for a third consecutive month, while small-caps and tech stocks continued to struggle.  The Dow Jones and S&P 500 rose 0.87% and 0.74% respectively, while the Nasdaq fell 1.96%.  Since the beginning of the year a noticeable trend has seen momentum stocks with large gains in 2013 dragging the market, and more specifically the Nasdaq, into negative territory.  International stocks outperformed their U.S. counterparts, while emerging markets were slightly positive.  Additionally, US bonds once again outperformed equities, with Treasuries having their best returns since January.  The Barclay’s US Aggregate Bond Index finished the month up 0.84%, bringing its year to date return to an impressive 2.70%.  Though 2013 saw unfavorable conditions for bonds, 2014 has brought positive returns for bonds and fixed income investments.

The Ukraine crisis and continued reduction of Federal Reserve stimulus has been at the forefront of investors minds’ but presently neither have been an impetus for an equity correction.  We have seen equity markets trading range-bound this year, in our estimation from mixed economic data and earnings leaving a muddled outlook.  We are awaiting further economic data this spring to see if the weaker first quarter numbers were an aberration or the sign of a more pronounced economic pattern.

 

MARCH 2014

U.S. markets experienced the volatility in March that has permeated this market at the start of the year.  After an up and down month, the Dow Jones and S&P 500 finished up the month 0.93% and 0.84% respectively.  The Nasdaq was the standout laggard, as the composite finished the month down 2.53%, though still in positive territory for the year.  Defensive stocks were the winners for the month, while more volatile tech names such as Facebook, LinkedIn, and Twitter all finished lower.  Small caps, gauged by the Russell 2000 Index, international markets, and the Barclay’s Aggregate Bond Index all struggled in March.  Economic readings were again mixed.   Fourth quarter 2013 GDP came in at 2.6%, down from the 4% growth seen in the third quarter of the year, but still positive.  Despite the economy adding 175,000 jobs in February, the unemployment rate ticked up from 6.6% to 6.7%.  As we enter the spring months, job creation and the unemployment rate will be key metrics for the Federal Reserve as they continue to evaluate the economic landscape.

 

 

FEBRUARY 2014

Stocks staged a nice rally in February after a dismal start to the year.   The S&P 500 recorded new record highs during the month, as soft economic data was blamed on the harsh winter weather.  Many analysts see the cold and snowfall impairing first quarter growth and, as a result, see pent-up demand on the horizon for the second quarter.  Federal Reserve Chair Janet Yellen reiterated likely trimming asset purchases, staying the course her predecessor Chairman Bernanke began.  In addition, fixed income, which can at times move conversely to the equity markets, continued a strong start to the year, finishing the month up 0.52%.  We are eager to see if March brings more selling as seen in January or the continued strength of February.

 

JANUARY 2014

The first month of 2014 brought declines in U.S. markets, a stark contrast to the strength and close of 2013.  Many speculated as to the decline being the result of the Federal Reserve’s reduced bond buying, slowing international growth and the fragility of the domestic economy.  Others saw the markets as taking a breather and investors selling for profits after a year of over twenty percent equity gains.  The standout of the month was the bond market.  The Barclays Aggregate Bond Index, an overall measure of bond performance, finished the month up 2.1%.  In addition, the Federal Reserve continued their path of exiting from their quantitative easing program, reducing monthly purchases by another $10 billion.  The biggest question going forward in 2014, in our estimation, is how strong the US economy will be without the QE program and what effects this will have on domestic and global markets?

DECEMBER 2013

US markets capped a stellar year with a strong finish heading into 2014.  The S&P 500 rose another 2.36% in December to return 29.60% on the year.  The Dow closed up 26.72% with the Nasdaq being the strongest of the three major indices, returning 35.05%.  The 10 year Treasury, a benchmark of U.S. bonds, ended the month up 27 basis points to 3.02%.   Signs of economic improvement continued, most notably a fall in the jobless rate.  In a much anticipated decision, the Federal Reserve announced it was tapering its economic stimulus of bond purchases from $85 billion per month to $75 billion per month.  Chairman Ben Bernanke stated that cumulative progress and an improved outlook for the job market was a key factor in this decision.  Investors cheered the Fed’s move and will look to continue to build on this success in 2014.

NOVEMBER 2013

Putting the government shutdown behind, US economic releases came in stronger than expected and the economy expanded by 2.8% in the three months to September – the strongest quarter of growth this year. With comments from the Federal Reserve and stronger data reported, many suggest that the tapering of asset purchases could begin as soon as December; however, an early 2014 start date is more likely. The S&P 500 rose 3% in November with the ten-year Treasury yields rising by 19 basis points. The market looks to keep an eye on the data going into the final month of the year to determine if we see new highs or begin a market pullback.

OCTOBER 2013

October was highlighted by the government shutdown. Members of US Congress stood their ground, but in the end, kicked the can down the road. The market, and almost everyone else, knew some agreement would be reached, which explains why the market not only rode through the shutdown, but also posted a small gain. After the band aid was applied, there was a small relief rally, as earnings took the top spot and attention.