Monthly Economic Update February 2013
Investment returns in February were generally positive despite a steady stream of challenges during the month. On the home front, retailers expressed caution as consumers face headwinds from higher taxes and rising gasoline prices. The Congressional Budget Office (CBO) also slashed its estimate for the long-term U.S. growth rate from 3.0% to 1.9%. As for policy, Federal Reserve meeting minutes revealed more discussion of backing off the monetary throttle, and Congress failed to either prevent or modify $85 billion in sequestration cuts that are now in effect. Internationally, subtle undertones of protectionism were evident during the month and not so subtle competitive currency devaluations were unabashedly pursued, particularly by Japan. The threat from Iran is also escalating, and saber rattling between China and Japan has been disconcerting. Lastly, the relative calm in Europe gave way to renewed concerns following inconclusive elections in Italy. The failure of any political party to achieve a parliamentary majority may lead to prolonged instability and renewal of the European financial crisis. Although Italyâ€™s political leadership is in question, there was no doubt about the electorateâ€™s massive rejection of the austerity policies adopted by Mario Monti.
As mentioned, investment markets performed admirably in the face of the challenges outlined. Key supporting factors included: universally expansionary comments by central bankers globally, upwardly revised U.S. Q4 GDP growth from -0.1% to 0.1%, the CBOâ€™s forecast of a 2013 U.S. deficit below $1 trillion for the first time in five years, jobless claims pushing against a five year low, renewed vigor in U.S. manufacturing, and continued strength in U.S. housing.
Februaryâ€™s Economic Releases
The S&P 500 gained 1.4% for the month and is now up 6.6% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were down 0.9% in February while the MSCI Emerging Markets index lost 1.3%. Year-to-date, international developed and emerging markets are up 4.3% and 0.1%, respectively.
In the fixed income market, the Barclays U.S. Aggregate index gained 0.5% for the month, and the yield on the 10-year U.S. Treasury bond fell slightly to end at 1.89%. For the year, the Barclays U.S. Aggregate is down 0.2%. High yield credit spreads moved in a tight range this month and remain about 100 basis points below the 15 year average of 6.12%. The Barclays High Yield index gained 0.5% in February and is up 1.9% so far this year. After losing 2.0% for the month, international bonds are down 3.0% for the year-to-date. Lastly, the Dow Jones UBS Commodity index was down 4.1% in February, and the Dow Jones U.S. Real Estate index gained 1.2% for the month.
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.