Weekly Economic Update

Economic Update:

 

Economic data in the industrial production and retail sales areas, in particular, was stronger than expected and fueled hopes that the cold winter doldrums are behind us in favor of a more ‘productive’ spring.

In a short week, markets gained on decent earnings reports as well as better-than-expected economic growth in China.

U.S. equity markets were up strongly in the shortened week, with better economic data and a few earnings reports that surprised on the upside.  In terms of sectors, energy and industrials led the way, up 3-4%, while utilities and telecom lagged, but still gained nearly 2%.  Large-cap and small-cap ended up roughly in line.  As of Friday only 80 firms in the S&P had reported earnings, 40% of which were positive, but is typical of this point in the reporting cycle (in the past few years, early reporters have been less robust than later reporters).  This coming week will represent the biggest group.

In developed foreign markets, Japanese stocks rallied mid-week to a 2% gain as the nation’s finance minister laid out a plan for investing additional government pension assets in equities to help offset the expected low return from domestic bonds going forward—this naturally had a positive stock market effect due to the higher implied demand.  The U.K. and Europe ended up with positive returns to a lesser degree.

In emerging markets, China’s 1st quarter GDP came in mid-week at a level of 7.4%, which, although a drop relative to last quarter’s 7.7%, it was a positive surprise to many who feared something nearer to (or below) 7%.  Russian equities fell on heightened tensions, but negotiations to delay sanctions led to a recovery later in the week.  Other EM nations were generally lower as well, with a slightly stronger dollar.

Bond returns were off in the ‘risk-off’ week, with the exception of high yield and floating rate bank loans, which gained a few basis points on the week.  Worst-performing, unsurprisingly, were long-term treasuries and mortgage-backed.  The middle of the yield curve was affected more than the edges.

A stronger dollar was negative for most foreign bond sectors, and pushed the majority into the negative on the week.  Emerging market debt held up a bit better than developed markets.

All global real estate returns were in the positive, led by industrial/office and retail in the U.S., while Asia lagged with only a percent gain.  Mortgage REITs lost ground in line with higher interest rates.

Commodity returns were up about a percent on average (as measured by the DJ-UBS index), and were led by gains in the agricultural group—wheat and soybeans in particular, the former based on increased tensions in Ukraine (a major wheat producer) and late freeze conditions in the Midwestern U.S, which threatened harvests for winter wheat.  WTI crude oil prices gained around a percent on the week to end near $105, which seems to be a point of technical resistance.  Gold and precious metals declined several percent—Tuesday was the biggest loss of 2014 so far—as news from China indicated demand for the metal may be falling further.

After its semi-annual meeting, the IMF released its most recent global economic report and outlook for the coming year—overall world growth is expected to rise from 3% last year to 3.6% in 2014 and 3.9% next year, led by emerging markets with 2014 growth pegged at 4.9% and 5.3% next year.  Despite volatility in these markets, they remain the world’s growth engine.

 

Period ending 4/18/2014 1 Week (%) YTD (%)
DJIA 2.40 -0.36
S&P 500 2.71 1.49
Russell 2000 2.40 -1.87
MSCI-EAFE 1.03 0.77
MSCI-EM -0.61 0.65
BarCap U.S. Aggregate -0.42 2.21

 

U.S. Treasury Yields 3 Mo. 2 Yr. 5 Yr. 10 Yr. 30 Yr.
12/31/2013 0.07 0.38 1.75 3.04 3.96
4/11/2014 0.04 0.37 1.58 2.63 3.48
4/18/2014 0.03 0.43 1.75 2.73 3.52

 

 

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

 

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.  FocusPoint Solutions, Inc. is a registered investment advisor.

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