Global growth forecasts for 2018 have been revised higher, most
notably in the Eurozone. U.S. expected 2018 GDP growth is 2.6%,
above the expansion average. The Eurozone has experienced an
impressive economic recovery. In the third quarter, a real GDP
accelerated to 2.6%, the fastest pace of growth since 2011. The
House and Senate agreed to a final tax bill that was signed into
law by President Trump on December 22nd. The bill,
formally known as the Tax Cuts and Job Act, represents a major
overhaul of the U.S. tax system.
Developed and emerging economies have exhibited coordinated
positive growth for the first time in this recovery. Absolute
growth remains subdued relative to history.
During the second quarter, economic releases have begun to miss
expectations in the U.S. and U.K. after much upside surprise. The
Eurozone continued to deliver positive surprises, but by a
smaller margin. Heightened expectations help to explain some of
the recent date disappointment.
The U.S. presidential election results took many investors by
surprise. After an initial overnight
plunge in the futures market, U.S. equities rallied on
expectations of a more pro‐business regulatory environment and
the possibility of large‐scale fiscal stimulus. U.S. equities may
possess greater upside potential post‐election.
The US equities market finished the first quarter of 2016
modestly above where it began the year, despite dipping over 10%
by mid-February. Markets suffered from concerns of negative news
related to China’s growth and currency, falling commodity prices,
and the possibility of a US recession. After some moderately
positive economic numbers, a stabilization of commodity prices,
and a more cautious tone from Janet Yellen on the pace of future
rate increases, the markets stabilized, and then rebounded in
March. The S&P 500 index rose 1.4% in the first quarter.
Even though the equity markets embarked on a price recovery in
the fourth quarter of 2015, most could not erase losses from
earlier in the year. In the last month of 2015, the Federal
Reserve raised its target rate for federal funds 25 basis points
after nearly seven years of near-zero interest rates. US equities
embraced the Fed’s tightening in stride, causing the S&P 500
index to rise 7.0% in the fourth quarter. Small Cap Stocks, as
measured by the Russell 2000 index, continued to lag large cap
equities, appreciating 3.6%. Overall, the Russell 3000 index
The third quarter of 2015 brought turmoil to many asset classes
around the world amid concerns over global growth and the timing
of the Federal Reserve’s first rate hike since 2006. Investors
reacted to this uncertainty. Perceptions of risks rose and
volatility spiked. As a result, the S&P 500 index declined
6.4%, Small Cap Stocks, as measured by the Russell 2000 index,
dropped 11.9%, and the broader Russell 3000 index lost 7.2% for
the quarter. For the 1-year period ended September 30, 2015,
these indexes returned -0.6%, 1.2%, and -0.5%, respectively.
Many forecasters, including those at the Federal Reserve and the
International Monetary Fund have repeatedly overestimated the
economy’s strength, both in the U.S. and around the globe.
They’ve predicted faster economic growth than has occurred.
Extended valuations, the decline in corporate earnings, and
investor’s sentiment in the European markets have slowed the U.S.
A very strong August for the market was bookended by weak
performance in both July and September. Investors are
grappling with the ramifications of improving economic conditions
in the U.S. that are leading to a wind down of Federal Reserve
accommodative policy. While good news, it comes at a
juncture where stock valuations on the whole already reflect the
fact that we are more than 5 years into this bull market.
Concerns about weaker global economic growth have led to a sudden
strengthening in the U.S.
There is a growing realization that monetary policy on an
extraordinarily easing mode can have negative effects on risk
taking and how that will get recalibrated over the next two years
as policy makers move to normalization. The good news has
been in U.S. job growth. Despite lower than expected GDP stats
for the first quarter, the labor market in the U.S. seems to have
moved to a firmer footing.
The S&P 500’s bull-run marked its fifth anniversary in
February this year. Over this time period, global equity
markets have endured a near collapse of the Eurozone, serious and
ongoing geopolitical issues, and sluggish GDP and corporate
revenues. None of these concerns have been sufficient to
derail the liquidity-fueled equity markets. However, the
return of frostier relations between the West and Russia, talk of
an emerging tech bubble, and uncertainty relating to the end of
quantitative easing, has left investors feeling a sense of unease
as markets progress into 20
The stock market finished 2013 with its biggest annual gain in
over a decade—up over 30%—and also marked its fifth consecutive
annual gain. Whereas one year ago investors were concerned about
the “fiscal cliff” and whether the economy could avoid a
double-dip recession, inputs now support the view that economic
growth will sustain itself and likely improve in 2014. The
Federal Reserve has also made headlines with various
announcements about the gradual withdrawal of quantitative
easing. While this is likely to drive further volatility, the
positive background is that the U.S.
The discussion about a potential tapering or slowing down of the
Federal Reserve’s latest quantitative easing program led to a
pull-back in the major indices. Concern over the Federal
Reserve’sintention to reduce its quantitative easing program
caused a rout in the fixed income markets. In two short months,
the yield on the 10-year Treasury note jumped 80 basis points,
steamrolling bond prices along the way. The Barclays Capital
Aggregate returned -2.3% for the quarter and -0.7% forthe year.
U.S. equities surged during the quarter, with many of the broader
U.S. indices up low double digits. Many of the improved
macroeconomic conditions have been aided by the Federal Reserve’s
continued accommodative interest rate policy, and with inflation
below its 2% target and unemployment well above its 6.5%
objective. The S&P 500 index rose 10.6% for the first quarter
of 2013, while the DJIA and NASDAQ returned 11.9% and 8.2%,
respectively.Smaller stocks performed the best with the Russell
2000 appreciating 12.4% due to continued strong economic data
results from the prior quarter.
Heightened fears over the U.S. fiscal cliff outweighed numerous positive indicators in the fourth quarter of 2012 as the S&P 500 index fell 0.4%. The decline occurred despite the resolution of U.S. elections and the Federal Reserve’s commitment to keep its target interest rate near zero and buy U.S.
Fears over the U.S. fiscal cliff and a pronounced slowdown in
China have limited upside gains in risk markets in the wake of
the quantitative easing throughout the developed world. The
Federal Reserve announced QE3, which allows for unlimited MBS
purchases, until the labor market improves.
For the first quarter of 2012, US equities generated another
quarter of double-digit returns as additional liquidity-boosting
measures from global central banks and improving US economics
strengthened risk appetite. The NASDAQ improved 18.7%. The DJIA
and S&P 500 increased by 8.8% and 12.6%, respectively.
Emerging markets fared better than developed markets. The MSCI
Emerging Market rose 14.1%. For the bond markets, the Barclays
Capital Aggregate gained 0.30%
For the fourth Quarter, US Stocks performed better than their
international and emerging markets counterparts. The DJIA
outperformed the S&P 500 and NASDAQ, posting returns for the
quarter of 12.8%, 11.8% and 7.9% respectively. The MSCI EAFE was
up 3.4 % and MSCI Emerging Markets was up 4.5%. Amid market
uncertainty, bond markets remained in favor, with the Barclays
Capital Aggregate gaining another 1.1% in the fourth quarter,
closing the year with a gain of 7.8%.
Worldwide equity markets faltered in August and September,
closing their worst quarter since the collapse of Lehman Brothers
in 2008. Investors’ flight from equity was driven by uncertainty
surrounding the debt crisis (Sovereign) in Europe, potential
inflation and slowing GDP in Asia, and double-dip recession fears
domestically. The Dow Jones Industrial Average fell -11.5%.
The overall markets were flat for the 2nd quarter. The Dow Jones
Industrial Average returned 1.4%. The Standard & Poor’s 500 and
NASDAQ stock indexes were mixed, up 0.1% and down -0.3%,
respectively. The MSCI EAFA was up 1.6% and Emerging Markets (EM)
decreased -1.1%. The markets began to react negatively to
often‐contradictory economic indicators and the ensuing
heightened volatility, experiencing a steady slide through most
of the quarter. In addition to social unrest in Greece, the
second quarter witnessed continued supply chain issues as a
result of the earthquake in Japan.
Alameda County Employee Retirement Association (ACERA)continues
to monitor capital markets very closely. The Dow Jones Industrial
Average returned 7.1% during its best first quarter in percentage
terms ins 12 years. The S&P 500 and NASDAQ stock indexes were
up 5.9% and 4.8% respectively, for the quarter ending March 31,
2011.The MSCI EAFA was up 3.5% and Emerging Markets (EM)
increased 2.1% over the same period. The quarter was not without
its problems: the European debt crisis continues to simmer; the