Current Thinking

4th Quarter 2013 Economic & Market Review

The Federal Reserve’s December announcement of modest tapering forthcoming in 2014 did little to lessen investors’ affection for equities. Bond investors especially those at the long-end of the curve, however, continued to squirm. Real Estate investors were likely disappointed after returns fell short of historical norms (S&P US REIT Index, -0.7% 4th Quarter “4Q”; +2.4% Year-to-date “YTD”).

Equity Markets

US Equity markets broke nicely from the gate in 2013 (S&P 500 Index, +10.6% 1Q) and finished in robust fashion down the stretch (S&P 500 Index, +10.5% 4Q) for a handsome 12-month pace of 32.4%, such prowess had not been seen since a 33.4% return posted in 1997.

Overseas investors were invited to the party as well, afforded a 4Q return of 5.7% and a YTD total of 22.8% through the MSCI EAFE Index. Emerging markets attempted to play the role of spoiler limping through 4Q with a return of 1.8% (MSCI Emerging Markets Index) whilst tumbling 2.6% for the YTD.

US mid-caps (+8.4% 4Q) and small-caps (+8.7% 4Q) trailed their large-cap brethren for the quarter, but outpaced for the YTD (Russell Midcap Index, +34.8%; Russell 2000 Index, +38.8%). There was little differentiation amongst investment styles, for either the quarter or year with the exception of small cap growth stocks outperforming their value counter-parts by 8.8% for the YTD.

Fixed-Income Markets

All was not rosy for the nearly capsizing bond market. The Barclays US Aggregate lost 0.1% for the quarter, sinking 2.0% for the YTD. While long credits managed to stay afloat for the quarter (+1.5%) they too finished underwater for the YTD (Barclays US Aggregate Credit Long, -6.6%). Yet the darkest depths were reached by long treasuries which retracted 3.1% for the quarter and touched bottom for the year (Barclays US Aggregate Gov’t Treasury Long Index, -12.7% YTD).

About the Author

Michael Randazzo

As a Senior Investment Strategist, Mike oversees all aspects of portfolio management, including investment policy development, asset allocation policy, investment manager evaluation and capital markets strategy. On an ongoing basis, he also tracks performance measurement and analysis for our clients.


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