Monthly Economic Update February 2014


February Summary
A widely expected acceleration of economic activity in 2014 has thus far proven illusive. Fourth quarter annualized GDP growth was revised lower (3.2% to 2.4%), and consumer confidence, already off the highs of 2013, fell in February from a downwardly revised level in January. Higher mortgage rates and limited inventory have cooled housing markets, and retail sales, led by disappointing auto sales, contracted sequentially in both December and January. Manufacturing activity has been lackluster as well. A sizable drop in January’s purchasing manager’s manufacturing index was confirmed by declines this year in durable goods orders, industrial production, and capacity utilization. Labor markets have also not supported the theme of faster expansion. Disappointing payroll gains in December, initially dismissed by many as a transient data point, repeated in January. In short, as illustrated below by the drop in Citigroup’s Economic Surprise index, economic reality has fallen short of hopes and the trend is not encouraging.

Despite overwhelmingly disappointing economic results, investment markets rallied strongly in February. Two themes have emerged to explain the paradox. The first suggests short-term weather related challenges have masked an otherwise healthy economy. The second camp, less sanguine than the first, places faith in a sympathetic Fed slowing its pace of tapering. Although many factors argue against both theories, investors may not have clarity until post winter data emerges in April and May.

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February’s Economic Releases

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Market Returns
The S&P 500 gained 4.6% for the month and is now up 1.0% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were up 5.6% in February while the MSCI Emerging Markets index rose 3.3%. Dollar weakness, in aggregate, lifted monthly returns for U.S. dollar based investors. Year-to-date, international developed and emerging markets have returned 1.3% and -3.4%, respectively.

In the fixed income market, the Barclays U.S. Aggregate Bond index gained 0.5% for the month, and the yield on the 10-year U.S. Treasury note ended essentially flat at 2.66%. For the year, the Barclays U.S. Aggregate Bond index is up 2.0%. High yield credit spreads plummeted 40 basis points during the month to end at a new postcrisis low of 3.81%. The Barclays High Yield index gained 2.0% in February and is up 2.7% so far this year. International bonds gained 2.0% for the month and are now up 2.8% for the year-to-date. In other markets, the DJ U.S. Real Estate index gained 4.7% for the month while commodities tacked on an additional 6.2% on top of gains from January. Year-to-date, real estate and commodities are up 8.5% and 6.6%, respectively.


Disclaimers
This commentary was written by Robert W. Lamberti, CFA, Vice President of Investments and a Principal of Summit Financial Resources, Inc. Source of performance: Morningstar®. 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 & Poor’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 “unsubscribe” 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.’s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666.

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