• A jam-packed week of economic data releases boosted by a faster Q2 real GDP growth rate, a stronger ISM manufacturing reading in July and upbeat consumer confidence levels.
• Weaker housing sales data in June, and in-line results for July’s payroll numbers and June’s personal income and consumption data.
• No major surprises from last week’s FOMC meeting with another asset purchase reduction of $10 billion each month; Philadelphia Fed President Charles Plosser voted against the guidance language about rates being on hold for “a considerable time after the asset purchase program ends.”
• Initial jobless claims came in softer than the consensus expectation with a small improvement for the 4-week moving average and slightly higher continuing claims.
• U.S. equity markets pulled back at the end of the week in reaction to the ongoing geo-political tension in Eastern Europe and the Middle East plus fears of uncertainty after the expected end of the Fed’s QE3 in October.

Despite a strong U.S. Q2 GDP report and several improving economic data, financial markets took a downturn at the end of the week after no major surprises from last week’s FOMC meeting.  As expected, the Fed kept the short-term rate at 0.25% while reducing its asset purchases by another $10 billion to a total of $25 billion starting in August.  U.S. equity markets sold off across the board.  Small cap stocks were deeper into the red zone for the year-to-date performance.  Defensive sectors fared better.  Telecom, healthcare, consumer discretionary and utilities sectors outperformed energy, industrials and financials in the S&P 500 index.

Outside the U.S., international developed stocks outperformed U.S. stocks.  The MSCI Pacific index declined -0.58%, much less than the MSCI Europe index’s -2.91% for the week.  For the year-to-date, Pacific outperformed Europe by 3.72%.  Emerging markets stocks held up surprisingly better than both U.S. and EAFE markets.  Within the emerging markets, the MSCI BRIC index lost 2.08%, 36 bps behind the MSCI EM index.  The EM Asia region as a whole outperformed emerging countries in Europe and Latin America.  Argentina officially defaulted from its coupon payments as the negotiations between the country and a handful number of holdout creditors failed.  Rating agencies downgraded Argentina’s rating to Selected Default at S&P and Restricted Default at Fitch.

BarCap U.S. Aggregate Bond index was slightly down by -12 bps last week.  Bonds outperformed stocks in a down week.  With no major surprises from the Fed’s meeting, the U.S. 10-year Treasury yield edged up 4 bps to 2.52% from a week ago.  Short-term bonds beat long-term bonds.  Government bonds outperformed credit.

Measured by the Citi Non-U.S. World Government Bond index, foreign-developed sovereign bonds were off by -37 bps, but ahead of emerging market bonds by 85 bps.  The U.S. dollar strengthened on the back of robust Q2 GDP numbers.

U.S. REITs declined 2.28%, underperforming foreign REITs by 152 bps in the week. Commodity returns were down 1.71% as measured by the Bloomberg Commodity Index (former DJ-UBS index), beating a total return of -2.63% from the energy-heavy S&P GSCI Commodity index as energy lost ground.

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.