Fourth Quarter Market Review

Two institutions with the biggest influence on the stock markets in the past year, the Federal Reserve and U.S. Congress, both reversed policy course from the third quarter, but with the same positive result – U.S. stocks finished the quarter byFederal Reserve setting another all-time high, with the S&P 500 Index up 10.5% for the final three months of the year. In the last Federal Open Market Committee meeting of 2013, the Fed decided to start reducing its asset purchases, commonly known as tapering, after delaying this decision for months due to concerns over “a too fragile economy.” At the same time, after allowing a 16-day partial government shutdown just weeks earlier, Congress legislated a rare compromise and passed a two-year budget in early December.

Growth Oriented (Equity) Benchmarks

Category

Benchmark

Q4 2013

1 Year

3 Year

5 Year

10 Year

Global Equity MSCI All Country

7.31%

22.80%

9.73%

14.92%

7.17%

U.S. All Cap Russell 3000

10.10%

33.55%

16.24%

18.71%

7.88%

U.S. Large Cap S&P 500

10.51%

32.39%

16.18%

17.94%

7.41%

U.S. Small Cap Russell 2000

8.72%

38.82%

15.67%

20.08%

9.07%

International MSCI EAFE

5.71%

22.78%

8.17%

12.44%

6.91%

Developing Markets MSCI Emerging

1.83%

-2.60%

-2.06%

14.79%

11.17%

Commodities Dow UBS

-1.05%

-9.52%

-8.11%

1.51%

0.87%

Global REITs NAREIT Global

-1.10%

2.24%

6.84%

15.63%

Note: All benchmark results for periods longer than one year are presented as compound annual returns.  Benchmark returns do not include fees.

Stocks ended the year with strong gains in developed countries. The Federal Reserve’s continued engineering of low interest rates, an accelerating U.S. economy and improved corporate earnings supported higher stock prices in the U.S., Europe and much of Asia.  Japan was the standout performer for the year, with stock prices rising almost 55% in local currency.  Because the Japanese Yen fell during the year versus the U.S. dollar, a U.S. investor’s return on Japanese stocks was reduced to 27%.  Stocks in the developing markets struggled last year, posting a loss of 2.6%, while commodities posted deeper losses of nearly 10%.

Income Oriented (Bond) & Cash Benchmarks

Category

Benchmark

Q4 2013

1 Year

3 Year

5 Year

10 Year

Global Bond Market Barclays Global

0.22%

-0.14%

3.62%

4.11%

4.43%

U.S. Bond Market Barclays U.S.   Aggregate

-0.14%

-2.02%

3.26%

4.44%

4.55%

Municipal Bonds Barclays Municipal

0.32%

-2.55%

4.83%

5.89%

4.29%

Cash 3 Month Treasury   Bill

0.02%

0.07%

0.10%

0.12%

1.67%

It was difficult year for bonds in 2013.  As the Federal Reserve first contemplated and then approved a $10 billion cut in its monthly bond-buying program, the yield on the benchmark 10-year Treasury note rose to end the year at 3.03% – its highest level since July 2011.

Third-quarter GDP growth was revised to a much better than expected 4.1%, well above the 2.5% rate of the second quarter.  After years of a global recovery characterized by fits and starts, perhaps 2014 is the year of more synchronized global growth.

“Always bear in mind that your own resolution to succeed is more important than any other.”                                                                                                                   Abraham Lincoln