March Economic Outlook - Sumner Wealth Management

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Economic Outlook

March 2015

 
 

Dear Visitor,

February Market Recap

 

February was a good month for global stock markets. The overall U.S. market (Russell 3000) was up 5.8%, as was the S&P 500 (a better measure of large companies). It was the best month for the S&P since October 2011. Small caps (Russell 2000) were up 5.9%.

International markets, led by developed regions such as Europe and Japan, also had a nice month, with the MSCI ACWI ex-U.S. up 5.4%. The MSCI Emerging Markets Index lagged at 3.0%. The bond market, as represented by Barclays Capital Aggregate Bond Index, lost a bit of ground last month (-0.9%) as the 10-year U.S. Treasury bond yield moved higher, closing the month at 1.99%.

While multiple factors impacted the U.S. stock market last month, arguably one of the most important was the expectation that the Federal Reserve won’t raise short-term interest rates as fast as had been earlier expected. Thanks to more economic data coming in worse than anticipated last month, the expectation of an increase shifted from summertime to late in the year. This view can, and will, undoubtedly change again. Even though investors thought short-term rates would stay low, longer-term rates did move higher. Rate-sensitive sectors, such as utilities and real estate, significantly lagged the rest of the market.

 

International Stocks Better Domestic Counterparts

In what has become a recurring pattern so far in 2015, international stocks bettered their domestic counterparts. News of Greece securing a four month extension from the eurozone removed one near-term worry from markets, though the recent drama could very well return to center stage by the summer. With geo-political turmoil seeming to at least take a breather, investors appeared to be refocusing their attention on the state of the global economy.

 

Index Returns (%) 

Source:  Bloomberg

Index

 1 Week

YTD

1 Year

Dow Jones 30

-0.04

1.74

11.10

S&P 500

-0.27

2.21

13.18

Russell 2000

0.13

2.38

4.26

MSCI EAFE

1.05

6.28

-2.56

S&P GS Commodities

0.71

-2.01

-36.19

U.S. Trade-Weighted $

1.08

5.54

15.55

 

Market Performance

1Russell 3000 2S&P 500 Index 3Russell 2000 Index 4MSCI ACWI ex-U.S. Index 5MSCI EAFE Index 6iShares
MSCI Emerging Markets Index 7Barclays Capital U.S. Aggregate Bond Index 8Barclays Capital 1-3 Month U.S.
Treasury Bill Index

Stock Market

 FEBRUARY

QTD

YTD

3 YR

Total U.S. Market1

+5.79%

+2.85% 

+2.85% +18.02%

  Domestic Large Cap Equity2

+5.75%

+2.57%

+2.57% +18.00%

  Domestic Small Cap Equity3

+5.94%

+2.53%

+2.53% +16.58%

International Equity4

+5.35%

+5.19%

+5.19% +6.49%

  Developed International Equity5

+5.98%

+6.50%

+6.50% +9.41%

  Emerging Market Equity6

+2.99%

+3.54%

+3.54% -0.92%

U.S. Bonds7

-0.94%

+1.14%

+1.14% +2.76%

 

U.S. Economic Releases Fall Short

Economic releases in the U.S. continued to fall short of expectations. For example, consumer confidence fell short of expectations (95.4 versus 99.5 expected) and initial unemployment claims jumped by 31,000 to 313,000. Colder-than-usual weather and Presidents Day may have been partly responsible for the disappointing data. Nevertheless, and as depicted in last week's Monitor, the day-to-day reads on the U.S. economy have certainly been falling short of the mark lately. Fourth quarter GDP was revised down from 2.6 percent to 2.2 percent. However, the string of weaker-than-expected data did not deter Federal Reserve ("the Fed") Chairwoman Janet Yellen from continuing to lay the groundwork for the Fed to start to raise interest rates in 2015. In her testimony before Congress this week, Chairwoman Yellen said the Fed is preparing to consider raising rates "on a meeting-by-meeting basis." Fortunately, the Fed will provide investors warning beforehand, in that before entering the "meeting-by-meeting" phase the Fed will first remove the reference to being "patient" in its communications to investors and markets.

 

Labor Market Indicators Remain Healthy

Despite the recent relative weakness in U.S. economic releases, labor market indicators have remained decidedly healthy. In particular, the last few Non-Farm Payrolls reports have all reported a strong labor market. Next Friday the Non-Farm Payroll Report for February is due, and investors will be eager to see if the expectation for job creation is met (+235,000).

 

U.S. Dollar Gains at Expense of Euro

With the Greece-related commotion subsiding (at least for a while), the Fed readying investors for its first rate hike in years, and the European Central Bank (ECB) preparing to commence its bond buying program in a few weeks, it is not surprising that the U.S. dollar gained this week at the expense of the euro. On a trade-weighted basis, the U.S. dollar gained over one percent this week, and has risen over 5 percent year-to-date. This makes the relative outperformance of international stocks in 2015 all the more impressive. In fact, the MSCI EAFE has outpaced the S&P 500 by over 4 percent so far in 2015!

 

Domestic Stocks Roar Back in February
After a weak January, domestic stocks came roaring back in February, with the large cap S&P 500 up over 5.5 percent and the small-cap Russell 2000 up almost six percent. However, bullish sentiment has definitely risen to frothy levels. As such, it is always prudent to keep a level perspective, and not abandon long-term discipline to chase near-term trends.

 

 To my clients, friends, and colleagues. Thank you for your continued support!  I would like to   hear your thoughts and feel free to forward this on to other individuals who could benefit from this information.

 

Sumner Wealth Management             

Mark Sumner                                         
Financial Advisor  
              

 

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