Weekly Economic Update

Domestic markets continued higher, with additional Fed promises of more accommodative policy, but were outshined by many foreign names.  Several more speculative areas that performed well last year, such as biotech and social media, have experienced negative results as of late.

The Friday jobs report was decent—neither exciting nor disappointing, so market reaction was tempered.  Other economic data was similarly mixed, as poor winter results are being sloughed off.

Markets were generally higher on the week, led by additional Janet Yellen comments committing to a continued easy policy.  In the S&P, industrial, energy and materials stocks led, while technology lagged with negative returns on the week.  We’ve certainly seen additional weakness from some of the market’s highest beta sectors, such as biotech and social media, which performed so well in 2013 and now seem to be coming back to earth a bit.  This is also seen in recent strength in large-cap versus small-cap.

Outside the U.S., European markets were calmed by Mario Draghi’s promise to keep accommodation intact, gaining the most by region, with the U.K. and Japan just positive.  With growth remaining quite slow in the Eurozone, it wouldn’t be surprising to see pressure for additional accommodation this year due to fears of too much disinflation on the opposite end.  Japanese industrial production numbers were down sizably in February, and this week the 8% sales tax rolls out.  Emerging markets were the clear winners on the week, with recovery performances from Turkey, Russia and Brazil.  China was flat to a bit negative, with decent banking sector earnings.

Bond markets were mixed with yield curve steepening being the story—lower yields in the intermediate area and slightly higher yields on the long end.  In the U.S., high yield bonds and intermediate-term credit led, while long bonds lagged despite the small yield change.  Internationally, emerging market bonds performed best of all, upwards of +1%

All real estate segments were positive on the week, led by Asian markets with a multiple-percent gain, followed by U.S. residential and retail.

Commodity markets were generally flat on the week and were led by a recovery in some industrial metals (except for copper), as well as continued strength from coffee and grains, as well as an increase in gold.  Weakest contracts on the week were natural gas, cotton and sugar; crude oil fell by about a half-percent.

The first quarter of 2014 was a decent one for investors—the back-and-forth risk-on/risk-off dynamic surfaced again in Jan. and Feb., which resulted in relatively even results for stock and bond investors.  Real estate and commodity owners were no doubt pleasantly surprised by some of the strongest asset class returns for the quarter.  Bond returns were positive, but a bit weak against the broader BarCap Aggregate, due to falling rates over the period and a lack of portfolio duration exposure.  Small-caps were the worst-performing, which reinforced our continued recommendation for an underweight due to valuation.

Period ending 4/4/2014 1 Week (%) YTD (%)
DJIA 0.58 -0.39
S&P 500 0.44 1.44
Russell 2000 0.15 -0.56
MSCI-EAFE 1.52 1.57
MSCI-EM 1.74 -0.06
BarCap U.S. Aggregate 0.10 1.97

 

U.S. Treasury Yields 3 Mo. 2 Yr. 5 Yr. 10 Yr. 30 Yr.
12/31/2013 0.07 0.38 1.75 3.04 3.96
3/28/2014 0.04 0.45 1.74 2.73 3.55
4/4/2014 0.03 0.43 1.71 2.74 3.59
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