On the heels of another strong year for US equities in 2014, the first quarter of 2015 reignited fears of stretched valuations, slowing growth, and tightening monetary policy. Despite these concerns, the S&P 500 was able to gain a small but positive 1.0% for the quarter. Small-cap US stocks fared much better for the quarter (Russell 2000: +4.3%), reversing the trend of underperforming their larger counterparts.
Most importantly, the Federal Reserve positioned itself for a potential rate lift-off in the third quarter, setting a path toward normalization of interest rates despite the fact that economic growth "moderated somewhat" in the second half of the quarter. The Fed removed the term "patient" from its policy statement, signaling that it could raise the overnight rate as early as June, although concerns over slowing wage growth and a desire to see "further improvement in the labor market" should push the decision until at least Q3.
International Equities
After a dismal 2014, international equities had a nice rebound in Q1 as measured by the MSCI EAFE (+4.9%) and the MSCI Emerging Markets (+2.2%). Many emerging market economies continue to feel the impact of lower commodity and oil prices as well as a strengthening US dollar. International central banks were busy during the quarter:
The Bank of England unanimously approved keeping the overnight lending rate at 0.5% as inflationary readings neared zero and signs of an economic slowdown emerged.
The Swiss National Bank unexpectedly removed its three-year policy of capping the 1.20 Swiss francs to the euro.
The Bank of Japan retained its plan of increasing the monetary base by 80 trillion yen.
The People's Bank of China slashed the reserve ratio by another 50 bps.
And most significantly, the European Central Bank committed to purchasing 1.1 trillion euro of sovereign debt in hopes of reflating the economically troubled region.
Fixed Income
Fixed income indexes gained across the board in the first quarter, with the exception of international bonds, which were down 4.6% as represented by the Barclays Global Aggregate ex-US. The Barclays Municipal 1-10 Year Blend gained 0.8%, while the Barclays US Aggregate gained 1.6%. High- yield securities experienced the largest quarterly gain; the BofA Merrill Lynch High Yield Master II was up 2.5%.
Commodities and Real Estate
Commodities (DowJonesUBSCommodityIndex:-5.9%) and oil (CrudeBrent: -3.9%) continued the prior year's decline into 2015. Alternatively, real estate investments (MSCI US REITs: +4.5%) continued to see strong gains despite mixed economic data. New home sales reached a 7-year high in February, while existing home sales were constrained by a lack of inventory.
This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice, before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction. Past performance is not a guide to future performance. Opinions and estimates are as of a certain date and subject to change without notice.
All material presented, unless specifically indicated otherwise, is under copyright to SVB Wealth Advisory, Inc. and its affiliates and is for informational purposes only. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of SVB Wealth Advisory, Inc. All trademarks, service marks and logos used in this material are trademarks or service marks or registered trademarks of SVB Financial Group or one of its affiliates or other entities.
Thomas O’Keefe is the Head of Investment Strategy, responsible for portfolio construction, manager due diligence and market insights. He is focused on driving investment solutions at a firm and client specific level.
Prior to joining SVB, Thomas spent 7 years with Hall Capital Partners, an investment advisor in San Francisco, CA for ultra-high net worth families and institutions. During his tenure with Hall, he contributed in structuring, analyzing and managing portfolios with a balance of optimizing performance, tax efficiency, risk preference and account organization.
Thomas graduated from the Santa Clara Leavey School of Business with a BS in Finance and earned an MS in Financial Analysis from the University of San Francisco. Thomas holds the Chartered Financial Analyst (CFA) and the Chartered Alternative Investment Analyst (CAIA) designations and is a member of the CFA Society San Francisco.
.png){kind=logo}