Quarterly Performance Update
'Global Divergence' Put U.S. in Spotlight
Fourth Quarter 2014
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While the U.S. was growing, the rest of the world was slowing, highlighting the mounting economic and central bank policy disparities between the world’s economies. This backdrop was favorable not only for U.S. stocks but also for U.S. bonds, which benefited from low inflation and relative yield advantages versus other global bonds.
The theme of “global divergence” became more prominent during the quarter, as the U.S. continued to distinguish itself from the rest of the world. The U.S. economy gained ground, prompting the Federal Reserve (Fed) to conclude its massive quantitative easing (QE) program and move closer to monetary policy tightening. But in most other regions of the world, slowing growth was the norm, and central banks embarked on additional stimulus efforts. In Europe, growth stalled and inflation declined, leading to expectations the European Central Bank would expand its stimulus efforts to include a QE program. Japan’s economy slipped into its fourth recession since 2008, triggering additional QE from the Bank of Japan. Meanwhile, slower growth and weakening inflation in China led to the first rate cut from the People’s Bank of China in more than two years.
In this environment, the U.S. stock market rallied. Solid economic growth, healthy corporate earnings, and low interest rates helped the benchmark S&P 500® Index advance 4.93%, its eighth-consecutive quarterly gain. Conversely, non-U.S. stocks generally remained weak, with developed markets (MSCI EAFE Index) falling -3.57% and emerging markets (MSCI EM Index) tumbling -4.50% in U.S. dollars. In addition to sluggish global growth, a 39% plunge in oil prices (Brent crude) and ongoing geopolitical tensions clouded the backdrop for non-U.S. stocks. The relative strength of the U.S. dollar (which rallied significantly versus the euro, yen, and other major currencies and put additional pressure on commodity prices) reduced non-U.S. stock returns for U.S.based investors.
The U.S. bond market also remained a global bright spot, rallying despite economic gains and the end of QE—factors many investors expected would drag down bond performance. Low inflation and robust demand for U.S. fixed-income securities helped U.S. bonds (Barclays U.S. Aggregate Bond Index) gain 1.79% for the quarter. Returns among non-U.S. bonds also remained strong in local currency terms, driven by slow growth, falling interest rates, and central bank stimulus. Overall, government bonds outpaced non-government bonds.
The opinions expressed are those of American Century Investments (or the fund manager) and are no guarantee of the future performance of any American Century Investments fund. This information is for educational purposes only and is not intended as investment advice.
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Source: Barclays Indices
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