February Market Review

March 11, 2016

Shortly after the end of each month, our Chief Investment Strategist David Klassen provides a review of the market and our funds’ performance. Following is a summary of February —

MARKETS

  • Global financial markets ended February with mixed performance after starting the month with sharp losses.
  • US equities were slightly down. The S&P 500, which tracks large cap stocks, was down 0.13%, and is down 5.09% Y-T-D. The Russell 2000 Index, which tracks domestic small cap stocks, was unchanged, with a return of 0.00% for February and is down 8.80% Y-T-D. The international developed equity index (MSCI EAFE) was down 1.83% in February and is down 8.93% Y-T-D. The emerging markets index (MSCI EM) was down only 0.16% for February and is down 6.64% Y-T-D.
  • The Japanese Index (Nikkei 225) ended February down 51% and is down 15.8% Y-T-D.
  • In February, bond yields decreased. The 30-year bond yield decreased 13bps to 2.62%, the 10-year decreased 19bps to 1.74%, and the 5-year decreased by 12bps to 1.21%. Bond yields move opposite prices, so treasury prices increased. The Federal Reserve left the overnight lending rate unchanged.
  • Corporate bond prices increased in February, with the Barclays Aggregate Index up 71% for February and is up 2.10% Y-T-D. However, the Credit Suisse Leveraged Loans Index (bank loans) was down 0.56% for February and is down 1.28% Y-T-D.

ECONOMIC & GEOPOLITICAL HEADLINES

  • The U.S. economy, measured by real gross domestic product (GDP), in the fourth quarter 2015, was revised up from 0.7% to 1.0%, according to “second” estimates released by the Bureau of Economic Analysis. This rate trails the second and third quarter GDP growth rates of 3.9% and 2.0%, respectively. Overall real GDP growth for 2015 is estimated at 2.4%.
  • The Federal Reserve did not meet in February. In January, Federal Reserve Chair Janet Yellen commented that economic growth was slower than expected at the end of 2015, which the market took as a sign that the Federal Open Market Committee (FOMC) will slow the pace of interest rate increases going forward. Interest rates were increased by 25 basis points in December.
  • Economic activity during the month of February in the manufacturing sector showed that the economy continued to contract for the fifth consecutive month. February saw a reading of 49.5, an increase of 1.3 percentage points from the January reading of 48.2, according to the Institute for Supply Management. A reading above 50 is considered economic expansion and below 50 is considered contraction.

The U.S. labor market grew in February as employers added 242,000 jobs, exceeding market expectations of 200,000 jobs per month. The unemployment rate remained at 4.9 percent in February, which is the lowest level since February 2008. December and January employment numbers were revised up by a combined 30,000 jobs.

 
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