December market review
Shortly after the end of each month, our Chief Investment Strategist provides highlights of the market and our funds’ performance. Following is a summarized review of December —
- Global financial markets posted mixed results in December. The US Federal Reserve began the process of reducing quantitative easing measures. Equity markets were mixed, with US & European gains partially offset by mixed performance in Asia and Emerging Markets. Equity gains were led by the US large cap as the outlook for the US economic recovery continued to improve.
- For the US equity indices, the S&P 500 was up 10.15% for Q4 and 32.39% for 2013. The Russell 2000 was the best performing index in 2013 returned 8.56% for Q4 and 38.82% 2013, outperforming the S&P 500.
- The Developed International equity index, MSCI EAFE, underperformed the S&P in Q4 and for 2013, but was up a still robust 5.71% and 22.78%, respectively.
- Emerging markets (EM) gave up gains again in December and were up 1.83% for Q4, and negative for the year, down -2.60%.
- The Japanese Nikkei 225 was up 12.70% in Q4 and up 56.72% for 2013. This performance has been largely driven by the Bank of Japan manipulation of the Yen, which was down -6.69% for Q4 and down -17.63% for 2013.
- The yield curve became steeper in December with the 10-year Treasury yield up 28bps to finish 2013 at 3.03% and the 30-year Treasury yield up 16bps to 3.94%. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
- Corporate bonds prices were down in the Q4. The Barclays Aggregate Index was down –0.14% for Q4 and down -2.02% for 2013. The Credit Suisse Leveraged Loans Index (bank loans) was up 1.82% for Q4, and 6.15% for 2013.
- Volatility in domestic equity markets was uncharacteristically very low through 2013, with the exception of the budget standoff and government shutdown in October.
Economic & Geopolitical Headlines
- The ISM manufacturing index indicated continued expansion in December, although US PMI was at 57.0% in December, down from 57.3% in November. PMI numbers show that manufacturing continues to strengthen throughout the world. In the US a reading above 50 is considered economic expansion.
- Job creation faltered in December, with the economy adding just below 75,000 new jobs even as the Fed voted to start cutting stimulus. Unemployment rate now at 6.7% at year-end, lowest since 2008, down from 7.0% in November.
- Domestic growth, as measured by GDP growth, was again revised to a 4.1% annual rate for the third quarter, up from 3.6% previously revised and better than the 3.1% economists predicted.
- Emerging markets took a step backwards in 2013 from a performance standpoint. The emerging market economies seem to be less a homogenous group and no longer are moving in lock-step fashion as they had done in recent years. The backdrop is investors grapple with structural and political issues in some countries, better relative economic improvement in developed countries, and comes despite favorable relative valuation.