2014 Clear Harbor Quarterly Market Outlook
Clear Harbor Outlook: Q4 2014
September 26, 2014
From secession efforts in Scotland to further unrest in the Middle East to continued Russian intrusions in Ukraine, an American looking through the lens of geopolitics might presume that financial markets suffered mightily in the third quarter of 2014. Such an investor would be wrong.
The S&P 500 continued its advance for the year, edging up 1.6% in the quarter for a total year-to-date gain of 8.9%. While other global equity indices proved mixed—the MSCI All World (ex-U.S.) Index is better by just 0.5% on the year—the drumbeat of poor headlines did not provoke a marked downturn. For example, the Euro Stoxx 50 Index, representing leading blue-chip companies across 12 Eurozone nations closed the quarter unchanged in euro terms, even as tanks rolled in Eastern Ukraine.
To be sure, geopolitical concerns, along with reasonable growth in the U.S., helped the dollar rise against other major currencies in the quarter, resulting in declines for unhedged U.S. investors abroad. The euro fell approximately -7%, causing dollar-based investors in the Euro Stoxx 50 to experience a return of -7%. Japan saw similar trends, as the yen depreciated from 101.33 to 109.30/$US.
Clear Harbor Outlook: Q3 2014
June 30, 2014
We close the first half of 2014 with the global economy continuing to notch regular improvements. Despite a pronounced degree of deceleration in China, where stocks declined, growth elsewhere—in conjunction with continued monetary stimulus around the globe—has supported a continued rise in equity prices, and pushed down real sovereign rates and spreads for both investment-grade and high-yield credit across the developed world, particularly in the Eurozone.
Year-to-date, the S&P 500 rose 6.95%, while the MSCI All World (ex-US) Index gained 4.84%. The Barclays Aggregate, our fixed-income benchmark, returned a total 3.75%. While each Clear Harbor client account is independently constructed, I am pleased that our core debt and equity strategies continued to outperform their benchmarks over the period.
Clear Harbor Outlook: Q2 2014
March 31, 2014
For the first time since the end of the financial crisis, U.S. markets adopted a more normal return profile in Q1 2014 as investors digested last year’s leap in share prices and a range of uneven economic and geopolitical news. Equities struggled for direction before closing up at a subdued and, we think, sustainable annual rate; bonds locked in a healthy part of our expectation for the year as a measure of volatility returned to the investment equation.
A number of international markets hesitated, with Japan, China and Russia faltering significantly. Commodities were mixed, with gold bouncing off recent lows, oil nearly unchanged after spiking during a tough winter, natural gas well supported above $4, and major soft commodities seeing double-digit gains in the face of persistent drought conditions across much of America’s bread basket.
These developments echo our caution at the start of the year that it would prove difficult to repeat the historic gains of 2013—a year in which equities grew at more than three times their historical rate amid volatility at or below pre-crisis levels. We maintain our general caution, even as shifts in the investment landscape suggest a changing blend of risks and opportunities as we enter the second quarter of 2014.
Clear Harbor's Outlook for 2014
December 23, 2013
2013 was another year of obtuse political wrangling over the U.S. debt ceiling and budget priorities, this time ultimately shutting down parts of the federal government for more than two weeks. Whatever the political costs of this most recent political theater, market participants were unfazed by the prospect of any real-life consequences for a still-fragile economic recovery.
The S&P 500 approached year-end surging 30% , without a single correction of more than 6%. Components of the fixed-income market fared less well, with the Barclays Aggregate Bond Index closing in negative territory (-1.8%) for the first time since 1999.
Based on the trajectory of these two important benchmarks, the foundation would appear to be in place for the first full-year rotation from fixed income funds into equity funds since 2007. Although an appealing prospect for those who follow stocks, such an environment renews long-term challenges for investors seeking significant income without exacerbating risk.