Pioneer Investments
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Summer 2013 Recap

Roller-coaster economic recovery continues as investors begin slow transition away from fixed income.

The summer of 2013 saw the U.S. economic recovery continue, albeit slowly and perhaps less-vigorously than hoped for by many observers. The fixed-income market experienced a sell-off early in the summer, driven in part by statements from the U.S. Federal Reserve Board (the Fed) that it was at least thinking about a timetable for tapering the pace of its monthly bond purchases. Other assets classes, like equities, experienced inflows as investors gained confidence from a few improved domestic economic indicators such as housing and auto sales. In the following article, Marco Pirondini, Executive Vice President and Head of Equities, U.S., at Pioneer, discusses the market environment during the summer and his views on current market conditions.

Market conditions certainly have been very interesting, to say the least, during the summer of 2013. We’ve seen the beginning of what most people believe is the long-awaited transition of portfolio flows from only fixed-income investments to a more balanced approach that includes equities and multi-asset vehicles. Fixed-income assets, which were once perceived to be a less risky asset class by investors, produced some negative returns and heightened volatility during the summer months. (The Barclays Aggregate Bond Index, a common measure of the domestic fixed-income market, returned -1.92% over the three-month period covering June, July and August.) In fact, there was more volatility in the fixed-income markets some days this summer than in the equity markets. So, clearly, the once-perceived “safe haven” that is fixed income is starting to show some cracks.

A lot of the volatility in the market has been caused by the Fed’s mixed messages with regard to its tapering of quantitative easing— the U.S. central bank’s $85 billion in monthly purchases of agency mortgage-backed and other government-related securities. As economic news continued to be somewhat disappointing during the summer, despite the uptick in housing and auto data, it seems that the majority of market watchers began to expect a stronger recovery to occur in the second half of this year. So far, however, the recovery has been fairly weak. U.S. gross domestic product (GDP) over the first half of the year came in at below 2%, weaker than expected. The disappointing GDP figure combined with low inflation resulted in fairly weak corporate growth rates. As the end of summer approached, U.S. corporations reported revenue growth of 1.2%, a weak result in nominal terms.

There are some bright spots

On the bright side, there have been some better-performing sectors in the market this summer. Financials has shown strong results, with 74% of the companies in the sector beating “Street” expectations by a significant margin. The other sector that has been a positive outlier is health care— again, with very strong earnings. We are hopeful about further improvement in the sector.

Equities seeing inflows despite weak data

One question that needs to be answered is this: If GDP and corporate earnings are so weak, why has money been pouring into the equity markets?.

The reason for this is two-fold:

  • The government continues to pump money into the economy
  • Overall market sentiment is very bullish

Honestly, we believe investor sentiment, more than any other factor, has been fueling the flow into equities. On the corporate side, earnings aren’t growing as expected, but price multiples are. As we move along toward the end of the year, we think the rally can gain momentum, but only if there are real signs of GDP growth acceleration. Before that happens, however, we still believe that further corrections are likely to occur.

The views expressed in this article are those of Pioneer Investments, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of Pioneer.


"On the bright side, there have been some better-performing sectors in the market this summer."