- U.S. economic data – including manufacturing, new orders for durable goods, and consumer confidence – were strong, exceeding consensus expectation.
- Housing sales and initial jobless claims came in weaker than consensus expectation.
- Conflict between Russia and Ukraine weighed on the market. Investors hid in safe-haven assets such as long-term government bonds and defensive stocks.
Boosted by positive economic news, U.S. equity markets were trending upward in the first half of the week. Toward the end of the week, investors’ concern on escalating tensions between Russia and Ukraine helped push the market lower. Large cap stocks outperformed both mid cap and small cap stocks. Defensive sectors beat cyclical sectors. Utilities and healthcare led the market with a small positive return, while telecom and consumer cyclical lagged with a small negative return. In general, value style outperformed growth style.
Outside the U.S., international developed stocks outperformed both U.S. and emerging market stocks. The MSCI Europe index beat the MSCI Pacific index by 58 bps for the week. In April, Eurozone economic expanded at the fastest pace since May 2011, and surveyed consumer confidence rose to the highest level since August 2013.
In emerging markets, the HSBC China manufacturing PMI for April continued pointing to contraction, even though the index recovered a little bit to 48.3 from 48.0 in March. Russia’s economic situation deteriorated and is in danger of slipping into recession in the second quarter of this year. Standard & Poor’s rating agency downgraded Russia’s credit rating to BBB-, one level above junk status with a negative outlook.
Not surprisingly, bonds outperformed stocks and returned positive. While geopolitical risk around Ukraine does not subside, investors seek safe-haven assets. Long-term U.S. government bonds were up more than 1%, outperforming corporate bonds.
Measured by the Citi Non-U.S. World Government Bond index, foreign-developed sovereign bonds returned 9 bps, outperforming emerging market bonds.
Foreign REITs lost 33 bps, underperforming U.S. REITs by 51 bps in the week. Commodity returns were up 27 bps measured by the DJ-UBS index. The energy heavy S&P GSCI Commodity index declined 54 bps.