Monthly Economic Update April 2014
Investment markets gained ground in April as investors looked past winter weakness as well as continued Ukrainian turmoil. Likewise, the Federal Reserve, in apparent agreement with investors, continued to ease off the gas pedal by deciding to reduce quantitative easing for a fourth time. Bond purchases will now run at a $45 billion per month rateâ€”nearly half the pace maintained throughout last year.
The conclusion to treat weak first quarter economic data as weather related, and thus temporary, appears correct. Payroll growth and retail sales, including autos, have moved higher from previously depressed levels. Consumer confidence has also rebounded and even the downward trend in inflation is showing nascent signs of stabilization.
Market stability and modest gains are welcome. That said, progress from here will require more than just a rebound from temporary headwinds. The recovery in housing has slowed. The category has been a drag on GDP growth for two quarters in a row, and future trends in real estate are unclear. Likewise, in contrast to widespread expectations for strength in 2014, business fixed investment has actually declined so far this year. For now, rough winter weather is still working its way through economic data; cleaner numbers may reveal greater housing and business strength in coming months.
Aprilâ€™s Economic Releases
The S&P 500 gained 0.7% for the month and is now up 2.6% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were up 1.4% in April while the MSCI Emerging Markets index rose 0.3%. Dollar weakness, in aggregate, boosted international stock returns for U.S. dollar based investors by about 0.5%. Year-to-date, international developed and emerging markets have returned 2.1% and -0.1%, respectively.
In the fixed income market, the Barclays U.S. Aggregate index gained 0.8% for the month, and the yield on the 10-year U.S. Treasury note ended essentially flat at 2.67%.
For the year, the Barclays U.S. Aggregate is up 2.7%. High yield credit spreads were more or less flat during the month and remain near the post-crisis low. The Barclays High Yield index gained 0.6% in April and is up 3.6% so far this year. International bonds were up 1.3% and 4.2% for the month and year-to-date, respectively. In other markets, the DJ U.S. Real Estate index gained an additional 3.0% in April while commodities rose 2.4% over the same period. Following a relatively tough 2013 for these asset classes, year-to-date gains of 12.0% for real estate and 9.6% for commodities make them this yearâ€™s best performers.
This commentary was written by Robert W. Lamberti, CFA, Vice President of Investments and a Principal of Summit Financial Resources, Inc. Source of performance: MorningstarÂ®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poorâ€™s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgage-backed securities, asset-backed securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, may have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. Securities and Investment Advisory Services offered through Summit Equities, Inc. Member FINRA/SIPC, and Financial Planning Services offered through Summit Equities, Inc.â€™s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666.