Weekly Economic Update

Economic Update:

  • Economic data was mixed, but survey responses showed stronger positive sentiment and housing appears to show some improvement.  The final 1st Quarter GDP release was amended downward, but this was largely blamed on weather effects and appears to be reversing for the current quarter.
  • Equity returns were generally negative on the week, as the negative GDP report and Iraq situation weighed on sentiment.  In more typical risk-off fashion, bond returns were higher on lower yields across the globe.

The markets fell a bit on the week in a summertime lull, of lower volume and minimal volatility (see above).  Consumer discretionary and utilities were the strongest performing sectors with gains of a percent, while consumer staples and industrials brought up the rear, losing a percent each.

Internationally, emerging market stocks eked out a small gain, including China/SE Asia and Russia, the former conducting a bit of indirect financial easing (through lack of expected restrictive activity) and the latter due to additional lightened Ukrainian pressures.  Developed nations lost ground on average—Europe and the U.K. faring the worst.  Despite the Bank of England keeping rates unchanged/low, fears of an eventual increase sooner than expected weighed on sentiment, as did weaker European PMI results (albeit still positive).

Bonds gained solidly on the week, with yields falling 5-10 basis points across the curve, resulting in one percent gains for long Treasuries.  High yield and floating rate were weaker on the week.

Developed foreign markets in Europe also gained strongly to a similar magnitude, helped by a half-percent drop in the dollar and continued uncertainty in Iraq.  The U.K. central bank kept rates unchanged on the week, which may have also been a contributor.  Japanese bonds fell as inflation hit a three-decade high of 3.4% year-over-year—what the government would consider a success.  Emerging market bonds also gained on a net basis with positive data in several nations, as well as a rate cut in Turkey.

European real estate led world returns in the asset class with a one percent-plus gain, while U.S. mortgages and residential also earned positive returns—helped by lower interest rates.  Asian and U.S. retail REITs were the weakest-performing on the week, with minor losses.

Commodities were generally down on the week.  WTI crude oil was lower by $2 down to just under $106, as was Brent crude down to $113—both closely watched due to events in Iraq, a large producer.  On the positive side, industrial metals copper and nickel both gained on the week by several percent due to tighter supplies.  Concerns in China about lowered demand for copper due to shady collateralized loan dynamics may be replaced by demand for the metal growing elsewhere (a positive development).  Several soft commodities, such as cotton, coffee and sugar, continued to correct by several percent from previously high levels.

Period ending 6/27/2014 1 Week (%) YTD (%)
DJIA -0.56 2.83
S&P 500 -0.06 7.17
Russell 2000 0.16 2.89
MSCI-EAFE -0.83 4.46
MSCI-EM 0.22 4.34
BarCap U.S. Aggregate 0.43 3.82
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
6/20/2014 0.02 0.50 1.71 2.63 3.44
6/27/2014 0.03 0.45 1.64 2.54 3.36

 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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