February market review

March 13, 2015

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 February—

MARKETS

  • Global financial markets posted strong gains in February. Oil prices experienced a recovery after several months of sharp losses.
  • US equities posted their strongest monthly gain since October 2011 as the S&P 500 was up 75% in February and is now up 2.57% Y-T-D. The Russell 2000 Index, which tracks domestic small cap stocks, was up 5.94% in February and is up 2.53% Y-T-D.
  • International equity markets were also positive for the month of February. The international developed equity index (MSCI EAFE) was up 98% for the month and has returned 6.50% Y-T-D. Emerging markets indices (MSCI EM) were up 3.10% in February and up 3.71% Y-T-D.
  • The Japanese Index (Nikkei 225) returned 36% in February and 7.72% Y-T-D. The US dollar was mixed against major currencies, reaching a 7-year high against the Japanese yen.
  • In February, US fixed income rates rallied strongly (and prices fell) across the curve in anticipation of the Federal Reserve’s first rate increase. The 30-year bond yield increased 37bps, the 10-year increased 35bps, while the 2-year increased by 17bps. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices decreased in February, with the Barclays Aggregate Index down         -0.94% in February but up 14% Y-T-D. The Credit Suisse Leveraged Loans Index (bank loans) was up 1.41% for February and up 1.67% Y-T-D.

ECONOMIC & GEOPOLITICAL HEADLINES

  • According to the second estimate released by the Bureau of Economic Analysis, the US economy, measured by real gross domestic product (GDP), increased at an annual rate of 2.2% in the fourth quarter of 2014. This estimate follows the strong annual growth rate of 5.0% in the third quarter.
  • The Fed met in February, and Chairwoman Yellen described how the Fed’s rate-setting policy committee will likely proceed in coming months. Yellen noted that when the word “patient” disappears from forward guidance, the Fed will still maintain full flexibility to act if it judges that economic data warrants it. Speculation that the Fed might raise rates earlier than forecast (mid-2015) was tempered by the statement.
  • Economic activity in the manufacturing sector continues to expand, but at a slower pace in February. The February the US PMI reading came in at 52.9, a decrease of 0.6 percentage points when compared to January. A reading above 50 is considered economic expansion.
  • S. job growth increased in February. The Labor Department reported total nonfarm payroll employment increased by 295,000 in February, compared with an average monthly gain of 266,000, and the 12th consecutive month of job growth over 200,000 in the past twelve months. February job growth beat analysts’ forecasts of 240,000. The unemployment rate decreased to 5.5%, from 5.7% in January 2015.
 
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