Monthly Economic Update February 2012
Favorable economic data and progress on the European debt front enabled Januaryâ€™s positive market momentum to continue in February. The S&P 500 index has doubled from the March 2009 bottom and is up over 25% from the lows of last October. International equity markets were strong for the month and currency gains against the U.S. dollar added to year-to-date gains, particularly in emerging markets.
As illustrated in the following tables, economic releases were nearly universally positive with the notable exception of housing, which remains weak. The labor market continues to improve, retail sales growth accelerated, consumer confidence jumped, and household debt and credit trends are attractive. Manufacturing and service economies reported good numbers and fourth quarter 2011 GDP growth was revised upward to 3.0%.
Acute risks in Europe have receded and Greece is well on its way to a second round of bailout funding. The European Central Bankâ€™s December offering of three year, low interest rate loans to European banks dramatically stabilized the debt crisis and helped to contain contagion. A second round of comparable financing, launched as February drew to a close, was highly subscribed and should prove equally calming to the global markets.
The ECB was not the only aggressive central bank during the month. Japan and the U.K. kicked off new rounds of quantitative easing and China lowered reserve requirements for banks. Of course, the Fed continues with Operation Twist and U.S. short term interest rates will be near zero for some time.
Despite the positives mentioned, risks remain. While immediate concerns in Europe have diminished, structural problems are, in some cases, severe. Resulting European growth/recession will be a drag on the global economy. Iranian saber rattling and related oil market disruptions/embargos will also be front and center. Through February, Brent crude was already up 14.2% for the year. Heightened tension and/or military action are very real risks.
Februaryâ€™s Economic Releases
The S&P 500 index gained 4.3% for the month and is now up 9.0% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were up 5.7% for the month. Emerging markets continued a strong rally this year, tacking on 6.0% in February. Year-to-date, international developed and emerging markets returned 11.4% and 18.0%, respectively.
In the fixed income market, the Barclays US Aggregate index was flat for the month and the 10-year U.S. Treasury bond ended with a slightly higher yield of 1.98%. For the year, the Barclays U.S. Aggregate has gained 0.9%. The credit rally that began last October continued with U.S. high yield debt spreads falling to the 15 year average and high yield bonds gaining 5.5% in February. On a global basis, bonds were off slightly for the month but have gained 2.1% for the year.
Commodities rose 2.7% in February while real estate (publicly traded REITs) lost 0.7% for the period.
This market commentary was produced by Summit Financial Resources, Inc., 4 Campus Drive, Parsippany, NJ 07054. Tel: 973-285-3600, Fax: 973-285-3666. 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, mortgagebacked 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, 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. 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.