Monthly Market Monitor - August 2014 Recap
Equities rebounded in August as investors welcomed improving economic conditions and strong corporate profit reports amid a growing belief that the Federal Reserve will continue to support growth, even as some policymakers signaled a desire to raise rates. A jump in business investment led government officials to upwardly revise their estimate of second quarter GDP growth from 4% to 4.2%. Rising optimism helped investors to overlook intensifying military incursions by ISIS forces in Iraq and Russia's entry into eastern Ukraine. The S&P 500, having its best monthly return since February, closed above 2,000 for the first time ever on August 26th, finishing the month at 2,003, a new all-time record high. Over $1 trillion was added to the value of global equities in August, reaching a record $66.2 trillion. The value of stocks worldwide stood at $63 trillion at the September 2007 peak prior to the financial crisis, and fell to as low at $25 trillion in March 2009.
Small-cap stocks outperformed large-caps as the Russell 2000, the 2,000 smallest companies within the Russell 3000 Index, rebounded 5% in August after a 6.1% loss in July. Mid-cap stocks, as measured by the Russell Mid Cap Index, gained 4.8% last month, extending 2014 gains to 10.6%. Growth stocks widened their lead over value as the Russell 1000 Growth Index rose 4.6% in August, whereas the Russell 1000 Value Index gained 3.7%. Year-to-date however, the Russell 1000 Value Index continued to outperform the Russell 1000 Growth Index (10.4% versus 9.5% respectively).
Nine of the ten major sector groups rallied in August, with Utilities (+5%), Healthcare (+4.9%) and Consumer Staples (+4.7%) gaining the most. Energy (+2.2%) rose the least, while Telecom (-1%) fell. All ten sectors are higher so far this year with Healthcare (+16.1%) and Utilities (+16.1%) leading the way, followed by Technology (+14.9%).
Overseas developed markets underperformed the U.S. last month as the MSCI EAFE Index fell fractionally. Europe's STOXX 600 (+2.1%) posted its first gain since May after the region's central bank signaled readiness to implement new stimulus, possibly a bond-buying program. Emerging markets, as measured by the MSCI Emerging Markets Index, rose 2.3% in August, finishing near a three-year high. Emerging markets underperformed the U.S. last month, but outperformed on a YTD basis.
Treasuries, as measured by the Barclays U.S. Government Bond Index, rallied 1% in August, lifting YTD gains to 3.5%. The yield on the 10-year U.S. T-Note fell 22 basis points during the month to 2.34%. U.S. investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, returned 1.1% in August, extending its YTD gains to 4.8%. The Barclays U.S. Corporate High Yield Index, a proxy for non-investment grade corporate bonds, rose 1.6%, boosting its YTD return to 5.7%. The Barclays Municipal Bond Index rose 1.2% last month and has gained 7.5% YTD.
This information is compiled by Cetera Investment Management.