The Pension Boards - PBUCC - Market Update from CIO Dave Klassen

Market Update from CIO Dave Klassen – February 2023

Markets across the globe retracted in February after a strong rally in January as the job markets showed continued resilience increasing expectations for terminal rates. The developed and emerging market equity index (MSCI ACWI IMI) decreased by -2.87% in February and is up 4.10% YTD. The S&P 500, which tracks large cap U.S. stocks, decreased by -2.44% in February and is up 3.69% YTD. The Russell 2000 Index, which tracks domestic small cap stocks decreased by -1.69% in February and is up 7.89% YTD. The International developed equity index (MSCI EAFE) decreased by -2.09% in February and is up 5.84% YTD. The emerging markets index (MSCI EM) decreased by -6.48% in February and is up 0.90% YTD.
In February longer-term bond yields increased; the 30-year U.S. Treasury bond yield increased by 28 bps to +3.93%, the 10-year yield increased by 40 bps to +3.92%, and the 5-year yield increased by 55 bps to +4.18%.
The Barclays U.S. Aggregate Index, which is a measure of U.S. Bond prices, decreased by -2.59% in February and is up 0.41% YTD.

U.S. gross domestic product (GDP) in the fourth quarter of 2022 increased by 2.7%, according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter of 2022 GDP increased by 3.2%.
The February’s Services PMI (formerly Non-Manufacturing Purchasing Managers Index) decreased to 55.10% from 55.20% in January, this represents expansion territory and higher than market expectations of 54.50%. The February’s Manufacturing PMI increased to 47.70% from January’s 47.40%. Per the Institute for Supply Management (ISM), a reading above 50 is considered economic expansion and below 50 is considered economic contraction.
February’s non-farm employment increased sharply by 311,000 jobs, and the unemployment rate increased to 3.6%, as reported by the Bureau of Labor Statistics on March 10th, 2023. In February employment increased in leisure and hospitality, retail trade, health care, and government. Average Hourly Earnings (wages) increased by 4.6% year-over-year in February..

The Equity Fund decreased by -2.50% in February and is up 4.12% YTD. The Bond Fund decreased by -2.29% in February and is up 0.58% YTD. The Stable Value Fund was up 0.17% for February and up 0.39% YTD. The Northern Trust Global Sustainability Index Fund (GSIF) decreased by -2.70% for February and is up 4.33% YTD.
The Balanced Fund decreased by -2.10% in February and is up 3.10% YTD. The Target Annuitization Date TAD 2025; TAD 2030; TAD 2035; TAD 2040 TAD 2045 and TAD 2050 returns were -1.33%, -2.16%, -2.42%, -2.43%, -2.42%, and -2.44% respectively for February and 1.67%, 2.27%, 2.66%, 2.98%, 3.24%, and 3.50% YTD.