The economy continued to improve in the fourth quarter of 2014 as Real GDP posted at 2.2%. Strong job growth, lower energy costs and a rise in home prices all contributed to economic growth during the quarter, but stagnant wage growth and an apparent peak in corporate earnings growth are a concern. Market valuations are higher, with the S&P's Price to Earnings ratio increasing to a 25 year high. Energy stocks continued to underperform and the strong performance of utilities stocks ended with the sector down 5.17% for the quarter. Broadly, small caps outperformed large cap equities and growth outperformed value. Uncertainty remains in the fixed income markets as the Fed continues to indicate a rise in interest rates coming this summer. The yield curve flattened out further as intermediate to long term Treasuries posted rates lower than this point last year. Investment Grade and high yield bonds were bright spots in the asset class. Guided by positive signs in Europe and Japan, international equity posted positive absolute numbers but a weaker euro dampened returns for US investors. Stagnant inflation continued to impact real asset returns with TIPs underperforming the broader fixed income market and commodities hit by a decline in agricultural and energy prices. REITs were a lone bright spot as investors continue to seek attractive yields.
To view the slides for Multnomah Group's Capital Markets Review, please click here.
