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Q4 2013 Wealth Market Commentary

And So It Begins

Eric Freedman
CAPTRUST Chief Investment Officer

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2013’s banner year for many asset classes leaves investors anticipating what 2014 may bring amid a flurry of market-moving events.

Last year provided domestic equity investors with the highest total return since 1997 and since 2009 for international developed equity investors, as measured by the S&P 500 and MSCI EAFE indices, respectively. Ongoing pro-growth central bank policies, including the U.S., Europe, U.K., and Japan were primary drivers in pushing asset prices higher across many global stock markets as increased liquidity found its way into many traditionally riskier asset classes. However, commodities and emerging market stocks were not beneficiaries of central bank moves, with both posting negative returns for 2013.

Bonds also had historically significant returns, albeit on the negative side. For the first time since 1999, bonds (as represented by the Barclays U.S. Aggregate Bond Index) lost money, falling 2 percent due to weakness in Treasury bonds. The U.S. 10-year Treasury yield, a key barometer for borrowing rates, fell as low as 1.63 percent during May but spent most of the rest of the year rising, settling at its highest level (just over 3 percent) since the summer of 2011. As a reminder, bond yields and bond prices move in opposite directions.

2014 begins with momentum across many global economies, although that momentum is uneven and highly country-specific. Coming out of the 2008 financial crisis, most central banks engaged in accommodative policies aimed to bolster economic growth. Six-plus years later, country and regional recoveries have followed distinct paths, leaving investors to assess relative winners and losers as the global economy adjusts to an environment with lower overall central bank involvement. The U.S. Federal Reserve will remain the market’s central focus, as the Fed announced in December it will gradually scale back stimulus under its hypothesis that the U.S. economy is improving on a more self-sustaining basis. A seemingly improved legislative environment will be tested early with yet another debt ceiling debate slated for February and March.

More regionally, Japan’s recent economic recovery will be tested this spring as consumers must endure a sales tax increase in an attempt to shore up that country’s savings/spending imbalance. Europe has seen some incremental progress on manufacturing and employment, but this year will display how enduring that progress is. China will also be under the microscope this year, with 2013 producing the Third Plenum, a set of economic, social, and legal reforms intended to help the Chinese towards their goal of becoming a fully developed nation this century. How China carries out that blueprint, coupled with its ability to create a more consumer-oriented economy, could shape Chinese demand, a major global economic growth contributor.

The new year brings new potential milestones and market events. However, principles such as valuation, risk management, and time horizon remain essential components to a successful investment outcome. We look forward to another year of excitement across the global capital markets and will keep you posted on the developments mentioned earlier as well as other events that could shape portfolios in 2014 and beyond. 

For more expanded commentary, please download the full version below.

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