LPL Financial Market Insight | “Stocks Cool Off as U.S. Economy Weathers Deep Freeze” | First Quarter 2014

• U.S. economy struggles to emerge from deep freeze. As 2014 began, the foundation was in place for better economic growth as the drags on the U.S. economy in 2013 were poised to reverse. But Mother Nature had other ideas, and severe winter weather caused significant disruptions to the U.S. economy. However, signs have emerged in recent weeks that the economy has made some progress underneath all that snow and ice. Underlying fundamentals in the labor market suggest that the job market may be thawing, and businesses are beginning to invest more in future growth through capital spending.
• Bull market enters sixth year as S&P 500 posts fifth straight quarterly gain. After a booming 2013, the stock market, much like the U.S. economy, got off to a bit of a slow start in 2014. Still, the S&P 500 Index’s
  1.8% first quarter return marked the fifth straight positive quarter for the broad market index and extended the current bull market into its sixth year. Stocks did suffer a pullback of just over 5% during the quarter because the widely anticipated pickup in economic growth failed to materialize. Emerging market (EM) concerns also contributed to stock market volatility.
• Commodities bounced back after challenging 2013.After a very challenging 2013 for commodities markets, the stabilization that began late last year carried through to the start of 2014. The Dow Jones-UBS Commodity Index produced a strong 7.0% gain during the first quarter, reversing much of last year’s decline. The biggest contributor to the gain in the asset class was agriculture, as droughts in the United States and Brazil contributed to sharply higher grain prices.
• Bonds matched the performance of stocks. After the second-worst loss in the 40-year history of the index in 2013, the Barclays Aggregate Bond Index finished the first quarter with a positive 1.8% total return, equal to that of the S&P 500 Index after reinvestment of dividends. Bond prices rose across the board, and yields fell, with the 10-year Treasury yield closing the first quarter 0.3% lower near 2.7%. Credit paced gains in the bond market though all segments participated.

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