May Economic Outlook - Sumner Wealth Management

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Economic Outlook

May 2015

 
 

Dear Visitor,

April Market Recap

April was a great month for globally balanced portfolios. Gains were led by international markets. Emerging markets were up nearly 8%, and developed international markets were up 4%. This compares to the S&P 500’s return of less than 1%. Within the domestic stock market, there was some notable movement. First, while the S&P 500 only gained less than 1%, small cap companies lost nearly 3% in the month of April.
Sector performance, especially technology – outperformed, but another sector that we have emphasized this year – energy – crushed the overall market, gaining over 7% in April (and now outperforming the overall market year-to-date).
The bond market did slip, however, losing nearly 1%. The 10-year Treasury closed at 2.03% (up from 1.92% in March). Not all fixed income sectors lost ground though, providing continued evidence that fixed income investors need to remain tactical in looking for opportunities to boost risk-adjusted performance.
Commodities, led by energy, gained nearly 6% for the month and have now nearly recovered their losses from earlier in the year.
 

 Index Returns (%) 

 Source:  Bloomberg

Index

 1 Week

YTD

1 Year

Dow Jones 30

-0.31

1.13

9.15

S&P 500

-0.44

2.40

12.08

Russell 2000

-3.11

1.94

8.80

MSCI EAFE

-0.98 

7.78

-1.45

S&P GS Commodities

2.23

1.83

-34.11

U.S. Trade-Weighted $

-1.76

5.48

19.74

 

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

QTD

YTD

3 YR

Total U.S. Market1

+1.48%

+3.33% +17.06%

  Domestic Large Cap Equity2

+2.06%

+3.03% +16.93%

  Domestic Small Cap Equity3

-1.91%

+2.32% +16.17%

International Equity4

+4.83%

+8.49% +8.70%

  Developed International Equity5

+3.79%

+8.85% +11.20%

  Emerging Market Equity6

+7.47%

+9.63% +2.52%

U.S. Bonds7

-0.68%

+0.91% +0.05%

 

U.S. Interest Rates Rise

The rise in U.S. interest rates seemed to be at odds with the economic data released. First off, economic growth in the first quarter disappointed, rising just 0.2 percent against expectations of 1.0 percent growth. The slowdown was broad-based, with the key drivers of the deceleration being unseasonably poor weather, West Coast port bottlenecks and a stronger U.S. dollar. Furthermore, the Institute of Supply Management (ISM) Manufacturing index remained unchanged at 51.5 in April, its lowest level since May 2013. While the headline number still shows that the economy is expanding (e.g. any reading above 50 indicates expansion), the employment  component did slip to 48.3, its lowest level since September 2009! However, against this backdrop the U.S. Federal Reserve ("the Fed") reiterated that, although the timing is uncertain, they are on track to raise short-term rates later this year. "Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace." Next week investors will get a look at the job report for April. Expectations are for non-farm payrolls to rebound from March's disappointing report (e.g. after gaining just 126,000 jobs in March, jobs are expected to have risen by 225,000 in April).

 

Markets Do Not Move in Isolation 

Rising interest rates and a falling U.S. dollar would seem at odds with weak economic data. In isolation, that would probably be true. However, markets do not move in isolation. Over the last few months, interest rates around the globe have benefited by the European Central Bank's (ECB) commencement of its own version of quantitative easing. That, plus concerns regarding Greece's future in the European Union, drove the yield on German Ten Year Bunds down as low as just five basis points (that's just 0.05 percent!) in early April. However, since then economic data  out of the eurozone has shown considerable improvement. For example, German unemployment is at a 24 year low, and prices stopped falling in the eurozone in April. ECB President Mario Draghi's original plan was to maintain its bond buying program until September 2016, or until there was a "sustained adjustment in the path of inflation". This better-than-expected data has brought some uncertainty to that timetable, with the before unheard of possibility that the ECB's quantitative easing may end sooner than previously thought. German Ten year Bund yields had shot back up to 0.37 percent by the end of the week, dragging U.S. Ten Year Treasury Notes higher as well. The euro rallied along with eurozone interest rates, causing the U.S. Dollar to fall over one percent.

 

Welcome New Clients to Sumner Wealth Management 

                

 Tammy R  Mary H.   
 Lewis T.  Douglas C.
 Jeff L.  James W.
 Sheri F.  Christinia M.
 Ann B.  Mooresville Chamber Of Commerce
 

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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(704) 660.5510 x401 | www.sumnerwealthmanagement.com | msumner@ssnrep.com

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Markets Rarely Move in Straight Lines  

 

The recent action in global fixed income and currency markets (e.g. the U.S. trade-weighted dollar has dropped four percent over the last three weeks) is a good reminder that markets rarely move in straight lines, and that it is always prudent to check one's long-term assumptions if tempted to board what may feel like the investment equivalent of a one way train. The German Bund's recent rise in yield or U.S. Dollar's recent pullback are prime examples of this.