December Market Review
Following is a summary of the markets and our funds’ performance for the month of December 2016, provided by our Chief Investment Strategist David Klassen.
- Global financial markets posted gains in December to conclude a strong month, quarter and calendar year, with gains across global equities. S. equities increased, reached record highs intra-month December and ended 2016 near record highs. The S&P 500, which tracks large cap U.S. stocks, increased 1.98% in December and is up 11.96% for 2016. The Russell 2000 Index, which tracks domestic small cap stocks, increased 2.80% in December and has a return of 21.31% for 2016. The international developed equity index (MSCI EAFE) was up 3.42% in December and is up 1.00% for 2016. The emerging markets index (MSCI EM) was up 0.22% in December and up 11.19% for 2016.
- In December, the increase in bond yields continued and prices fell slightly. The 30-year U.S. Treasury bond yield increased 4bps to 3.07%, the 10-year yield increased 6bps to 2.44% and the 5-year yield increased 9bps to 1.93%.
- Corporate bond prices as measured by Barclays Aggregate Index were up 0.14% for December and are up 2.65% for 2016.
ECONOMIC & GEOPOLITICAL HEADLINES
- In the third quarter 2016, U.S. gross domestic product (GDP) was up 3.5% according to revised “third” estimates released by the Bureau of Economic Analysis. The second quarter 2016 GDP increased 1.4%.
- At the FOMC meeting on December 14th, the Federal Reserve (Fed) voting members raised interest rates 0.25%, recognizing the considerable progress the economy has made toward their objectives of maximum employment and price stability. Chairman Yellen commented that the FOMC expects the economy will continue to perform well, with the job market strengthening further and inflation continuing to rise. Overall, the Fed expects the economy will expand at a moderate pace over the next few years.
- Economic activity during the month of December, in the manufacturing sector, showed that the economy expanded at a faster trend over the past four months. The December PMI registered 54.7, up 1.5% from 53.2 in November and the highest since December 2014, according to the Institute for Supply Management. A reading above 50 is considered economic expansion.
- The U.S. labor market continues to grow. In December, employers added 156,000 jobs and the unemployment rate changed slightly to 4.7%. Both the labor force participation rate and the employment participation ratio changed slightly in December. October and November employment growth were revised by a combined total of 19,000 more than previously reported. Over the past three months, job gains averaged 165,000 per month.
- In December, net of all fees, the Fixed Income Fund was up 0.36% but was down 2.84% for Q4, and its YTD return is 3.72%. The Total Equity Fund was up 1.64% for December, up 1.03% for Q4 and its YTD return is 8.83%. The International Equity Fund was up 1.58% for December, but down 2.89% for Q4 and its YTD return is up 4.79%. The Small Cap Equity Fund was up 1.96% for December, up 8.12% for Q4 and its YTD return is 16.69%.
- The United Church Funds equity managers’ performance relative to their respective benchmarks was positive for December and for the year. International manager Ballie Gifford lagged its benchmark for December and for the year; Oaktree (emerging markets) lagged for the month but outperformed for 2016. LSV outperformed in the month and strongly outperformed for the year. In Domestic Core Equities, QMA lagged for December and the year, while Fiduciary lagged for the month but outperformed considerably for the year. Small Cap Equities had a tougher time, trailing its benchmark; however, the Small Cap benchmark was the strongest performing asset class on the year, up over 20% for 2016.
- The Moderate Balanced Fund in December was up 1.12%, down 0.43% for Q4 and has a return of 6.76% YTD. The Aggressive Balanced Fund was up 1.33% in December, up 0.14% for Q4 and has a return of 7.57% YTD. The Conservative Balanced Fund was up 0.79% in December, down 1.41% for Q4, and has a return of 5.50% YTD. The Alternatives Balanced Fund was up 0.57% in December, down 0.10% for Q4 and has a return of 5.27% YTD. The Beyond Fossil Fuels BFF Balanced Fund was up 1.40% for December, up 0.14% for Q4, and has a return of 6.52% YTD.