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Capital Market Review
Fourth Quarter 2016
By Jack D. Kraus, CFA, Chief Investment Officer
The broad market experienced another positive quarter adding to
the market recovery from the lows in early February. The S&P 500
was up 3.8% during the quarter and is now up 7.8% for the six
months. The nine-month return is a 10.5% gain and the trailing
twelve-month return is 12.0 %.
The S&P started the quarter off with a negative month and
rebounded for the next two months to finish out the quarter.
October saw a -1.8% decline followed by a 3.7% gain in November,
the strongest month of the quarter. The S&P 500 gained 2.0% in
December.
The bond market saw negative returns for the quarter as rates
rose on the expectation of higher inflation and expansionary fiscal
policy. The Bloomberg Barclays Aggregate Index fell by -3.0% for the
quarter. The index was down -2.5% for the six months and down
-0.4% for the nine months. Performance for the trailing twelve
months was positive, with the index gaining 2.7%
Inflation, as expressed by the Consumer Price Index, was 0.0% for
the quarter and up 2.1% for the year.
STOCK MARKET
The major market averages were mixed during the fourth quarter.
The S&P 500, an index of large company stocks, was up 3.8%,
while the Dow Jones Industrial Average climbed 8.7%. The Russell
2000, an index of small-company stocks, gained an 8.8% return for
the quarter. The MSCI EAFE, an index representing international
stocks of developed markets, fell by -0.7% in the quarter. The MSCI
Emerging Market, an index representing the international stock
of emerging countries, was down -4.2%. The Dow Jones US Select
REIT, an index representing real estate companies, was down -2.5%
for the quarter. The Bloomberg Commodity Index posted a positive
return of 2.7% for the three-month period.
The six- and nine-month periods saw mostly positive results. The
S&P 500 Index was up 7.8% and 10.5%, and the Dow returned 11.7%
and 14.0%. The Russell 2000 Index came in with an 18.7% return
for the six months and 23.2% for the nine months. The MSCI EAFE
Index returned 5.7% and 4.1%. The MSCI Emerging Markets Index
returned 4.5% and 5.2%. The Dow Jones US Select REIT Index fell by
-3.7% for the six months and gained 1.5% for the nine months. The
Bloomberg Commodity Index fell by -1.3% for the six months and
gained 11.3% over the trailing nine months.
Returns were positive across all asset classes in the twelve-month
period ending December 31st. The S&P 500 Index was up 12.0%,
while the Dow returned 16.5%. The Russell 2000 Index saw the
highest gain, returning 21.3% for the twelve months. The MSCI
EAFE Index posted a 1% return, while the MSCI Emerging Markets
Index rose 11.2%. The Dow Jones US Select REIT Index was up 6.7%
for the twelve months. The Bloomberg Commodity Index had an
11.8% return for the twelve months.
Market Returns
3 months
ending
12/31/2016
12 months
ending
12/31/2016
S&P 500
3.8%
12.0%
Dow Jones Industrial Avg
8.7%
16.5%
Russell 2000
8.8%
21.3%
MSCI EAFE
-0.7%
1.0%
MSCI Emerging Markets
-4.2%
11.2%
DJ US Select REIT
-2.5%
6.7%
Bloomberg
Commodity Index
2.7%
11.8%
Equity Styles
The Equity Styles were mixed for the quarter. Large Value gained
6.3%, leading Large Growth at -0.3%. The value/growth trend was
the same for small companies with Small Value increasing by 12.2%,
while Small Growth only gained 3.3%. The average International
Equity finished the quarter with a loss of -2.3%, while Real Estate
was again the worst performer, losing -2.6%.
The six- and nine-month periods saw generally strong results.
Large Value rose 10.2% for the six months, while Large Growth
saw a 5.2% return. For the nine months, Large Value gained 13.2%,
and Large Growth gained 5.8%. Small Value outperformed Small
Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered broker/dealer.
Member FINRA/SIPC.
Page 1 of 5
Comparison of Equity Styles
3 months ended 12/31/2016
For the nine months, Mega Caps were up 9.3% and Large Caps 10.8%,
while Mid-Caps returned 11.3%, Small Caps 23.2%, and Micro Caps
27.3%.
15
12
9
6
For the trailing one year, the return of Mega Caps was 10.4%, Large
Cap 12.1%, and Mid-Cap stocks 13.8%. Small Caps had the strongest
return gaining 21.3%, and Micro Caps gained 20.4%.
3
0
-3
Large Co.
Value
Large Co.
Growth
Small Co.
Value
Small Co.
Growth
Int'l EQ
Real Estate
Stocks by Sector
Growth across both time periods, gaining 20.4% vs. 11.8% for the
six months, and 23.0% vs. 16.0% for the nine months. International
Equity was up 3.8% for six months and up 2.7% for the nine-month
period. The average Real Estate manager lost -3.5% for the six
months and gained 1.8% for the nine months.
The Equity Styles were all strongly positive for the twelve months
with Small Value being the leader and International being the
laggard. Large Value gained 14.6% while Large Growth was at 3.2%.
Small Value increased 25.8% while Small Growth trailed at 11.0%.
The average International Equity finished the twelve months with a
return of 0.7%, while Real Estate returned 6.6%
Return by Market Cap
3 months ended 12/31/2016
10
8
6
4
2
0
MEGA
CAP
LARGE
CAP
MID
CAP
SMALL
CAP
MICRO
CAP
The trend for the three-, six-, nine- and twelve-month periods was
smaller companies outperforming larger companies.
All five of the market cap segments were positive for the quarter.
During the quarter, the Mega Cap and Mid-Cap segments
underperformed the broader market return of 3.8%, with returns
of 3.5% and 3.2%. Large Caps gained 3.8%, matching the market as
a whole. Small and Micro Caps were the strongest area during the
fourth quarter with returns of 8.8% and 10.0%.
The six-month period showed the same pattern as the quarter.
Mega Cap stocks returned 7.0% while Large Cap companies were up
8.0%. Mid-caps posted a gain of 7.9%. The Small Cap Russell 2000
posted a gain of 18.7%, while the Russell Micro Cap Index was up
22.4%.
3 months ended 12/31/2016
25
20
15
10
5
0
-5
Financials
Energy
Indus
Telecom Materials
Cons
Disc
Tech
Ulies
Cons Healthcare Real
Staples
Estate
The S&P 500 is now broken into eleven broad sectors with Real Estate
being broken out as a separate sector from Financials. The sectors
and their quarter-end weight in the index are as follows: Energy
7.6%, Materials 2.8%, Industrials 10.3%, Consumer Discretionary
12.0%, Consumer Staples 9.4%, Healthcare 13.6%, Financial Services
14.8%, Technology 20.8%, Telecom 2.7%, Utilities 3.2% and Real
Estate 2.9%.
Eight of the eleven sectors produced positive returns in the fourth
quarter, with five outperforming the broad market. Financial
Services was the strongest at 21.1%. Energy followed at 7.3% and
Industrials at 7.2%. Telecom returned 4.8% and the final sector to
outperform the market was Materials, returning 4.7%. The other
positive, but underperforming sectors were Consumer Discretionary
at 2.3%, Technology at 1.2% and Utilities at 0.1%. The negative
performing sectors were Consumer Staples at -2.0%, Healthcare at
-4.0%, and Real Estate at -4.4%.
Over the past six months, six sectors were positive with five
outperforming the broad market. The Financial Services sector
rose 26.7% while Technology posted a 14.2% gain and Industrials
returned 11.7%. The Energy sector returned 9.7% followed by
Materials with an 8.6% gain. The Consumer Discretionary sector
had a 4.4% return. Sectors that saw negative returns for the six
months included Telecom and Healthcare, dropping -1.1% and
-3.1%. Consumer Staples saw a -4.6% drop, and Utilities declined by
-5.8%. The worst performing sector was Real Estate, falling by -6.4%.
Nine of the sectors were positive for the nine months with five
outpacing the broad market. The strongest performing sector was
Financials, returning 29.3%, followed by the Energy sector which
rose 22.4%. Industrials posted a 13.2% gain, and Materials returned
Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered broker/dealer.
Member FINRA/SIPC.
Page 2 of 5
Stocks by Sector Cont.
12.6%. The Technology sector had an 11.0% gain, and Telecom had a
5.9% gain. Consumer Discretionary gained 4.4%. The remaining two
sectors with positive returns were Healthcare and Utilities, gaining
3.0% and 0.6%. Both Consumer Staples and Real Estate had negative
returns over the trailing nine months, losing -0.2% and -1.0%.
All but one of the sectors were positive for the twelve months, with
seven outpacing the broad market. The Energy sector increased
27.4% with a 44.8% increase in oil prices. Telecom and Financial
Services also had strong returns, gaining 23.5% and 22.8%.
Industrials posted an 18.9% return for the year, and Materials
gained 16.7%. Two other sectors had double-digit returns, with
Utilities gaining 16.3% and Technology gaining 13.9%. Consumer
Discretionary gained 6.0%, and Consumer Staples gained 5.4%. Real
Estate also had a positive return for the year, gaining 3.4%. The lone
sector with a negative return for the year was Healthcare, falling
by -2.7%.
BOND MARKET
A Trump victory in the November election led to higher rates across
the yield curve with the anticipation of changes to tax policy
and expansionary fiscal policy. Credit spreads narrowed during
the quarter.
The Federal Reserve decided to raise rates at their December
meeting, the first and only rate increase of 2016 and a far cry from
the Federal Reserve’s projection of four rate increases at this time
last year. Rates across the yield curve are higher than they were a
year ago across the board.
12/319/306/303/31
12/31
Treasury20162016201620162015
2 Year 1.20%0.77%0.58%0.73%1.06%
Stocks by Region
5 Year 1.93%1.14%1.01%1.21%1.76%
3 months ended 12/31/2016
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
Please note that these returns are in U.S. Dollar terms, and the
change in currencies will have an effect on the return.
10 Year 2.45%1.60%1.49%1.78%2.27%
30 Year 3.06%2.32%2.30%2.61%3.01%
Bonds by Maturity
3 months ended 12/31/2016
2
USA
Europe Lan America
Japan
Far East
While the United States had a positive return for the quarter, the
remaining four regions were negative, underperforming the return
of the United States. The S&P 500 Index returned 3.8% for the
quarter. Europe was down -0.4%, and Latin America fell by -0.9%.
Japan lost -0.2% while the Far East, the worst performing region,
lost -6.1%.
The results were better for the trailing six months with all regions
posting positive returns, though only Japan outperformed the
United States. The S&P 500 Index returned 7.8%, while Europe
returned 5.0%. Latin America gained 4.4%. Japan rose 8.4%, and the
Far East increased by 3.8% for the six months.
All regions had positive returns for the trailing nine months as well.
Europe was the weakest region, gaining only 2.2%. The U.S. was the
strongest region, increasing by 10.5%, and Latin American gained
10.0%. Japan increased 9.5%, while the Far East rose by 3.9%.
All regions had a positive return for the twelve months except for
Europe. The United States increased by 12.0%, while Europe fell
by -0.4%. Latin America, the strongest region, increased by 31.0%.
Japan was up 2.4%, while the Far East rose 6.2%
0
-2
-4
-6
-8
-10
-12
T-Bills
BC Govt
1-3
BC Intm
Govt
BC Long
Govt
As rates increased across the yield curve, the maturity sectors of
the bond market all had negative 4th quarter returns. During the
quarter, T-Bills produced a 0.1% return, the Bloomberg Barclays
Government 1-3 Year Index returned -0.5%, and the Barclays
Capital Intermediate Government Index produced a -2.2% return.
The Barclays Capital Long Government Index, which is the most
sensitive to changes in interest rates, was down -11.5%.
The returns for the six months were 0.1% for T-Bills, -0.6% for the 1-3
Year, -2.4% for the Intermediate, and -11.8% for the Long Index. The
nine- and twelve-month returns were 0.2% for T-Bills, 0.0% and 0.9%
for the 1-3 Year, -1.2% and 1.0% for the Intermediate, and -6.1% and
1.4% for the Long Index.
Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered broker/dealer.
Member FINRA/SIPC.
Page 3 of 5
Bonds by Sector
3 months ended 12/31/2016
The Bloomberg Commodity Index was up 2.7% during the fourth
quarter. The six-month return was down -1.3%, while the ninemonth return was up 11.3%. The Index returned 11.8% for the year.
During the fourth quarter, Crude oil was up 12.6%, which pushed
Unleaded Gas prices higher by 1.0%. Food was up with Corn rising
9.1% and Wheat increasing by 8.2%. Metals were mixed with Gold
falling by -13.4%, Platinum down by -13.2%, and Copper gaining
13.4%.
2
0
-2
-4
-6
-8
-10
-12
BC
Govt
BC
Mort
BC
Credit
BC
Muni
BC
High
CWGVT
Results were mainly negative across the bond sectors for all the
time periods. This was a result of lower-to-steady rates and spread
tightening coming from easing concerns of a slowing economy. The
Government Index was down -3.7%, while the Mortgage sector was
up 2.0% during the fourth quarter. The Credit Index fell by -3.0%.
The Municipal sector was down -3.6%. The Bloomberg Barclays High
Yield produced a positive return of 1.8% over easing credit concerns,
especially in the energy market, which makes up a large portion of
the high yield market. The World Government Index fell by -10.8%
for the quarter.
Six-month results were along the same lines with as the third
quarter, with all sectors except for High Yield turning in negative
results. The Government Index fell by -4.0%, the Mortgage Index
was down -1.4%, and the Credit Index fell by -1.8%. Municipals fell
-3.9%, while High Yield, the strongest sector for the six months,
gained 7.4%. World Government fell by -10.3%.
The nine-month period mostly followed the same trend with the
Government Index falling -2.0%, the Mortgage Index down -0.3%
and the Credit Index gaining 1.6%. Municipals fell 1.4%, while High
Yield had a 13.3% return. World Government fell by -6.7%.
The twelve-month returns were positive across all sectors. The
Government Index showed a return of 1.0%. The Mortgage Index
gained 1.7%, while the Credit Index gained 5.6%. Municipals
returned 0.2%, while high yield rose 17.1%. World Government
came in at 1.8%.
COMMODITIES MARKET
3 months ended 12/31/2016
15
12
9
6
3
0
-3
-6
-9
-12
-15
Crude
Oil
Unleaded
Gas
Corn
Wheat
Gold
Planum
Copper
The six-month returns saw mixed results. Oil was up 11.4%, and
Unleaded Gas prices were lower by -5.6%. Corn was down -2.2%,
while Wheat was up by 12.1%. Gold and Platinum were down
-13.2% and -10.1%, and Copper gained 13.8% for the six months.
The nine-month returns were mostly positive. Oil rose 45.5%, while
Unleaded Gas prices were higher by 13.9%. Oil was up 44.8% for
the twelve months with Unleaded Gas up 8.3%. Corn was off -1.3%,
while Wheat rose 11.8% for the nine months. Corn was down -3.7%
for the twelve months, while Wheat was up 10.7%. Gold was down
-7.4% for the nine months but up 8.1% for the twelve months.
Platinum fell by -8.0% for the nine months and gained 3.5% for
the twelve months. Copper was the bright spot, gaining 14.5% and
17.5% for the nine- and twelve-month time periods.
CURRENCY MARKET
3 months ended 12/31/2016
0
-3
-6
-9
-12
-15
EURO
POUND
YEN
AUS$
CDN$
Foreign currencies fell against the U.S. Dollar during the fourth
quarter. The Euro was down -6.2% against the U.S. Dollar for the
quarter, -5.3% for the six months, -7.4% for the nine months, and
-3.5% for the past twelve months. The British Pound continued to fall
against the U.S. Dollar by dropping -4.9% for three months, -7.8% for
the six months, -14.1% for the nine months and -16.6% for the year.
The Japanese Yen fell in value by -13.5% against U.S. Dollar in the
fourth quarter, -12.1% for the six months, -4.0% for the nine months
and gained 3.0% for twelve months. The Australian Dollar, which is
strongly influenced by commodity prices and the Chinese economy,
Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered broker/dealer.
Member FINRA/SIPC.
Page 4 of 5
Currency Market Cont.
saw its currency fall -5.7% during the fourth quarter, down -3.2% for
the six months, -6.1% for the nine months, and -1.3% for the twelve
months. The Canadian Dollar was down for the quarter, six, and
nine months with a -2.2%, -3.6%, and -3.5% decrease, but was 3.2%
higher for the twelve months due to the increase in oil prices.
The information included herein was obtained from sources which we believe reliable.
Past performance is not a guarantee of future results. Any mention of specific investments
is not intended to be an offer of sale. Please refer to a fund’s prospectus for investment objective, risks, charges, and expenses before investing. For more information, contact your
Allegheny Advisor.
INVEST IN YOUR PEACE OF MINDSM
811 Camp Horne Road, Suite 100 • Pittsburgh, PA 15237
Ph: 412.367.3880 • Fax: 412.367.8353 • alleghenyfinancial.com
Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered broker/dealer.
Member FINRA/SIPC.
Page 5 of 5