Economic Update

• Economic data was mixed to positive on the week, with solid results in some portions of retail sales, as well as the Empire and Philly Fed surveys; while other data, such as housing starts and sentiment, lagged a bit.
• Markets were relatively flat most of the week, until the Ukrainian plane crash put markets into a tailspin Thursday—that righted itself again to the upside by the week’s end.  Revenues and earnings for U.S. equities have surprised on the upside so far.

A subdued market week was shattered on Thursday with the airline crash in the Ukraine as well as a military offensive in Israel/Gaza, which caused the worst drop in two months (albeit ‘only’ -1%), although conditions improved Friday to bring returns back to a net positive.  From an industry standpoint, technology and financials outperformed, gaining over a percent, while health care and telecom lagged with marginal losses.  Small-cap stocks suffered a bit in the midst of comments from Janet Yellen in regard to perceptions of their overvaluation (you can’t say we didn’t warn you before now).

U.S. equities were in the midst of the 2nd quarter earnings season, which so far has been good.  In the S&P, with a quarter of companies reporting so far, ¾ have topped street earnings estimates.  Revenues are also coming in above average, with a similar ¾ of firms coming in ahead of expectations and by a wider margin than expected.

Internationally, developed and emerging markets on performed roughly in line on net.  Individually, Japanese stocks gained a percent and a half, with the U.K. roughly half that and Europe just a marginal increase.  Strength in several emerging nations, namely Turkey and Brazil, outweighed -5% losses in Russia following the Ukrainian plane crash with potential Russian connections.  Chinese GDP for the 2nd quarter was a tenth or two higher than expected, coming at 7.5%, boosting stock prices and hopes.

Bond yields were down a few basis points, so a positive week for the asset class—just not by much, as most segments traded within a range of a few basis points around zero.  Per the trend, long Treasuries saw the most gains due to their duration, while long-term credit earned smaller positive returns.  ‘Risk’ debt, such as high yield, Italian government, and emerging markets were generally down a bit more.

In real estate, European and Asian REITs both gained over a percent, followed by strong showing from U.S. residential and industrial/office.  U.S. mortgage and retail were only positive by a few basis points, at the bottom of the pack.

Commodities experienced a generally negative week, coupled with a stronger dollar, but several sub-categories were little changed on net.  Agricultural contracts led on the week, with positive results in soybeans and livestock.  Precious metals were surprisingly weak, losing a few percent despite geopolitical hotspots in the Ukraine and Israel.  West Texas crude oil moved higher again on the Ukrainian plane crash on Thursday, but came back down to earth Friday, settling just over $100/barrel.

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.