In the following piece, Fifth Third’s Investment Management Group recaps the market and how it reacted to various events in the month of March. I hope you find this Financial Market Roundup helpful and informative.
Well, it’s official: The first quarter of 2015 did not go well. Perhaps saving a little face, earnings beat expectations, but finished down approximately 3 percent from the previous year. Most of the blame lay at the feet of a stronger dollar and colder-than-expected weather. The West Coast labor dispute didn’t do us any favors either, as it substantially disrupted trade activity. The dodgy start in the first quarter was broad-based, as investors expressed more interest in safe haven assets, at the expense of riskier assets like stocks and energy. The S&P 500 only managed to climb 44 basis points over the three-month period; crude fell $6 a barrel and made new six-year lows; and the yield on the 10-year Treasury declined 25 basis points.
If this feels like déjà vu, it should. The first quarter of last year saw very similar returns in both the U.S. equity and bond markets. The only difference was that the price of crude was still moving higher at that point, but we all know how that played out. The second quarter of last year saw a nice rebound, as U.S. gross domestic product (GDP) growth posted a 4.6 percent expansion, after contracting 2.1 percent in the first quarter. Will we be as fortunate this year? Well, we nailed the disappointing first quarter part, as U.S. GDP growth essentially stalled in the first three months of 2015. However, April has performed well by most accounts, and many think the trend will continue, although modestly.
Let’s take a closer look at the April numbers here:
- The MSCI World Index, a broad measure of developed world’s stock markets, rose 2.35 percent for the month.
- The S&P 500, a measure of large U.S. companies, rose 0.96 percent for the month.
- The MSCI Emerging Market Index, a broad measure of the emerging world’s stock markets, rose 7.71% percent for the month.
- The MSCI REIT Index declined 5.90 percent for the month.
- Gold declined 0.21 percent for the month.
In April, investors added risk to their portfolios. The S&P 500 was up almost 1 percent for the month. The yield on the 10-year Treasury rose back above 2 percent, and oil surged 25 percent. What changed? The weak first quarter growth numbers followed disappointing non-farm payroll numbers in March (126,000 new jobs, released in April) and mounting concerns that the strong dollar is hurting corporate earnings. However, some of these headwinds have either moderated or are otherwise no longer an issue. Aside from a dollar that has lost some momentum and a resolved west coast labor dispute, there is plenty of evidence that suggests things will improve in the second quarter. Retail sales and manufacturing saw improving numbers for the first time in over three months, and durable goods orders jumped 4 percent. We’re seeing an uptick in core inflation, to a five-month high, and gains made by the employment cost index are increasing pressure on the Fed to start hiking rates.
It’s hard to say what would be considered a successful second quarter, as measured in GDP growth. Something close to the U.S. economy’s long-term average of 3 percent would be our starting point. We would also want to see considerable improvement in April’s non-farm payroll numbers and wage inflation would need to continue firming up. Many investors expect U.S. consumers to show up to the party at any minute, as they have been reluctant thus far to spend their savings at the gas pump on bigger ticket items.
Unfortunately, the first estimate of second quarter growth won’t be released until the end of July. In the meantime, we will do our best to read the tea leaves, paying special attention to economic releases that have the potential to influence a data-dependent Fed.
Market commentary provided by Fifth Third Bank. Source of
statistics is Bloomberg.com. Returns are calculated from market close on 4/1/15 through 4/30/15. This information is current as of the date of this
letter and the opinions expressed are subject to change at any time, based on
market and other conditions. This information is intended for educational
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S&P 500 Index is a composite of 500 companies, amongst the largest based in the United States, and it often used as a
measure of the overall U.S. stock market.
MSCI EMF (Emerging
Markets Free) Index is a free float-adjusted market
capitalization index that is designed to measure equity market performance in
the global emerging markets. As of June 2006 the MSCI Emerging Markets Index
consisted of the following 25 emerging market country indices: Argentina,
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MSCI US REIT Index
is a free float- adjusted market capitalization weighted index that is
comprised of equity REITs that are included in the MSCI US Investable Market
2500 Index, with the exception of specialty equity REITs that do not generate a
majority of their revenue and income from real estate rental and leasing
operations. The index represents approximately 85% of the US REIT universe.
The MSCI World Index
is a free float-adjusted market capitalization weighted index that is designed
to measure the equity market performance of developed markets. The MSCI World
Index consists of the following 24 developed market country indices: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong,
Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United
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