|November||3 Mo.||YTD||1 Year|
|MSCI EAFE ($ basis)||0.56%||11.29%||17.76%||21.42%|
|MSCI EAFE (local)||1.33%||9.17%||21.87%||25.70%|
|MSCI Emerging Markets ($ basis)||-1.56%||9.55%||-3.50%||1.12%|
All market data as of the end of November 2013. Quoted index returns are based on month end index prices (in local currency except where noted) and do not include dividends.
|U.S. ECONOMIC DATA|
|November||Prior Month||Beginning of Year||Prior Year|
|10 year Treasury Yield||2.75%||2.55%||1.76%||1.61%|
|Gold (London pm fixing per ounce in dollars)||1,253||1,324||1,676||1,726|
|Oil ($ per barrel)||92.72||96.38||91.82||88.88|
All economic and market data as of the end of November 2013.
Eye on the Market Express
U.S. equity markets rallied during November, as the benchmark S&P 500 Index rose by 2.8%, reaching new all-time highs. Domestic markets experienced strong economic results due to general optimism in the U.S. economy and the anticipated appointment of Janet Yellen as Fed Chair. However, the largest surprise of the month was the employment report. October nonfarm payrolls skyrocketed by 204,000, surpassing expectations of a 120,000 increase. Furthermore, revisions to August and September reports added another 60,000 jobs to previous estimates. In spite of these strong payroll results, unemployment still rose by 0.1% to 7.3%. Manufacturing, home prices, retail sales, GDP and leading economic indicators all exceeded expectations, while pending home sales and consumer confidence fell slightly short. Delving further into the economic indicator report showed that the Conference Board Leading Economic Index® (LEI) reported a 0.2% gain, beating expectations of a 0.1% rise. “The recent increase in the index supports our forecast that the U.S. economy is poised to grow somewhat faster at 2.3% in 2014 compared to 1.6% in 2013,” said Kathy Bostjancic, Director of Macroeconomic Analysis at The Conference Board. Sub-indexes which contributed positively to growth were financial, housing and manufacturing variables. Restraining growth is the ongoing caution of businesses that continue to keep tight reins on capital expenditures.
In regards to Janet Yellen, the Senate Banking Committee supported her nomination for Chair of the Federal Reserve. The vote was 14-8 and it is widely expected that the Senate will heed the recommendation of the Committee and appoint Yellen as the next Fed Chair. It is anticipated that Yellen will continue the highly accommodative monetary policies of the Federal Open Market Committee (FOMC); these speculations were further validated after Yellen’s statement: “I consider it imperative that we do what we can to promote a strong recovery; it’s important not to remove support, especially when the recovery is fragile and tools available to monetary policy, should the economy falter, are limited given that short-term interest rates are at zero.” Despite the remarks, many investors believe the FOMC will begin tapering asset purchases either in December or early 2014; an increase in the Federal Funds rate is not expected in the near future. Several other U.S. indices also achieved gains: the small-cap Russell 2000 Index rose by 3.9% and the NASDAQ reached a new 13-year high, increasing 3.6% in November.
International developed markets were mixed during the month. The benchmark MSCI EAFE Index and the Japanese Nikkei Index each achieved gains, rising 0.6% and 9%, respectively. Japanese equities benefitted from strong performances out of exporters following depreciation of the Yen; the Yen reached its lowest level versus the Euro in more than 5 years (139.71 yen per euro) and continued its slide against the dollar (102.94 yen per dollar). The weakness of the Yen can be attributed to a highly stimulative monetary policy in Japan. The Bank of Japan is attempting to expand their monetary base by 60-70 trillion yen per year, while maintaining a near-zero interest rate policy. In addition, Bank of Japan Governor Haruhiko Kuroda said the Bank of Japan will maintain its current policy until inflation is stable at 2%—up from the current level of 1.1%. Kuroda expects the 2% inflation target to be reached in late 2014 or early 2015, though he admits the goal is quite ambitious after 15 years of deflation in Japan. In Europe, the European Central Bank (ECB) surprised investors by cutting its benchmark refinancing interest rate in half to 0.25%. ECB Governing Council member Ardo Hansson commented that the ECB is prepared to further cut interest rates and potentially impose a negative deposit rate should economic conditions warrant. Overall, European economic results were mixed; most German data (manufacturing, investor confidence, business confidence) came in above expectations while French markets (manufacturing, GDP, business activity) disappointed. Meanwhile, the Bank of England left its key interest rate unchanged at 0.5%. Credit rating agencies were also active in the European region. The Moody’s rating agency upgraded Greece from a C to a Caa3 and Spain’s government bond rating from “negative” to “stable”, while S&P cut the Netherlands credit rating from AAA to AA+ and France from AA+ to AA. European indices responded to the news with varying results; the German DAX increased by more than 4%, yet the UK FTSE Index fell by 1.2%. Emerging market equities continued to underperform the developed indices with the MSCI Emerging Markets Index falling by 1.6% and extending its year-to-date loss to 3.5%. Emerging market equities have been pressured by slowing economic growth and inflationary pressures in certain countries. During the month, the largest equity market declines in emerging markets were found in Indonesia, Thailand and Brazil, while Chinese and Mexico rallied in major indices.
Fixed income markets were driven largely by economic data and continued speculation over tapering. For the month, the yield on the 10-year Treasury note rose to 2.75%, up 20 basis points from October and nearly a full percent year-to-date. The Barclays Aggregate Bond Index fell by 0.4%, extending its year-to-date decline to 1.5% and putting the Index on pace for its first decline since 1999. The TIPS market has been one of the worst performing areas within fixed income during 2013, declining 8% year-to-date and marking its poorest performance since being launched in 1997. Market participants who invested in TIPS expected an increase in inflation as a result of the Federal Reserve’s accommodative monetary policy, but the domestic economy has shown little signs of that.
Commodities continued its downward trend for the month of November. The Thomson-Reuters Jefferies CRB Index (“CRB Index”), led by declines in metals and energy, fell by 1.0% to a new 16-month low. Commodity prices were pressured by continued speculation over the tapering of asset purchases, low levels of geopolitical concerns and global inflation, and an increase in energy supplies. The CRB Index extended its year-to-date loss to 6.6%. Crude oil fell by nearly 4%, its third consecutive monthly decline. In response to this decline, average gasoline prices have fallen more than 52 cents to $3.26 per gallon, the lowest average since 2010. Gold prices also declined, falling more than 5% and recording its largest monthly drop since June—and its worst November since 1978. Gold prices have been hit sharply during the year, falling by more than 25%. Softening demand, little signs of inflation and significant sales in gold exchange traded funds have all contributed to the decline.
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