Market Update from CIO Dave Klassen - 2019 February

MARKETS

  • Global financial markets extended January gains through February, completing the best 2-month start for U.S. equities since 1991. The S&P 500, which tracks large cap U.S. stocks, was up 3.21% in February and is up 11.48% Y-T-D. The Russell 2000 Index, which tracks domestic small cap stocks increased 5.20% in February and is up 17.03% Y-T-D.  The International developed equity index (MSCI EAFE), increased 2.55% in February and is up 9.29% Y-T-D. The emerging markets index (MSCI EM) increased 0.22% in February and is up 9.00% Y-T-D.
  • In February, bond yields increased, and prices decreased; the 30-year U.S. Treasury bond yield increased 8bps to 3.08%, while the 10-year yield increased 9bps to 2.72%, and the 5-year yield increased 7bps to 2.51%.
  • The Barclays Aggregate Index, which is a measure of U.S. Bond prices, decreased 0.06% for February and is up 1.00% Y-T-D.

ECONOMIC AND GEOPOLITICAL HEADLINES

  • U.S. gross domestic product (GDP) in the fourth quarter of 2018 increased 2.6%, according to the “initial” estimate released by the Bureau of Economic Analysis. Third quarter 2018 GDP increased 3.4%.
  • The February Purchasing Managers Index (PMI) registered to 54.2, a 2.4 percentage point decrease from the January reading of 56.6, indicating that the economy grew at a slower pace.  Per the Institute for Supply Management (ISM), a reading above 50 is considered economic expansion.
  • Job growth came to a near halt in February as non-farm employment increased by only 20,000 jobs, even as the unemployment rate fell to 3.8 percent, as reported by the Bureau of Labor Statistics on March 8. It was the worst month for job creation since September 2017, when two major hurricanes hit the employment market, offset somewhat by a solid increase in wages.  Average Hourly Earnings (wages) increased 3.4% year-over-year. Payroll number for December and January were revised by a combined total of 12,000 more than previously reported. After revisions, job gains over the past three months averaged 186,000.
  • Fed continued communicating publicly its willingness to be more patient and be flexible given economic data.

PERFORMANCE UPDATES

  • Net of all fees, all accumulation Funds increased for February 2019.  The Equity Fund increased 2.46% in February and is up 10.67% Y-T-D. The Bond Fund was up 0.24% in February and is up 1.77% Y-T-D. The Stable Value Fund was up 0.14% for February and is up 0.27% Y-T-D. The Northern Trust Global Sustainability Index Fund (GSIF) increased 3.27% for February and is up 10.50% Y-T-D.
  • The Balanced Fund increased 1.47% in February and is up 6.53% Y-T-D. The Target Annuitization Date (TAD) 2020; TAD 2025; TAD 2030; TAD 2035; and TAD 2040 were all up 0.29%, 1.13%, 1.52%, 1.68% and 1.86%, respectively for February and are up 1.33%, 4.93%, 6.63%, 7.39% and 8.08% Y-T-D respectively.