Weekly Economic Update

  • A busy week of economic data releases boosted by an upward revised Q2 real GDP growth rate, a double-digit monthly gain of durable goods orders in July and better than expected consumer confidence going into the back-to-school shopping season.
  • Mixed housing sales data in July combined with more modest price appreciation and higher housing inventory will likely boost future sales.
  • Slightly better results for the recent week’s claim numbers; modest personal income growth in July, and smaller spending helped improve savings rate.
  • U.S. equity markets crossed a historical milestone: The S&P 500 index closed above the 2,000 mark for the first time, fueled by strong domestic economic data and a new M&A transaction between Burger King and Canada-based Tim Horton’s.  This was despite the escalating conflict between Ukraine and Russia and investors’ concerns on deflation and low growth in the euro-zone.

Amid a week of light trading ahead of the long Labor Day/Back-to-School holiday weekend, domestic equity markets continued marching higher.  The S&P 500 index cleared the 2,000 psychological price barrier for the first time, more than 16 years after the index surpassed the 1,000 level in February 1998.  The positive week was helped by a stronger Q2 real GDP report, robust durable goods orders, and upbeat consumer confidence reinforced by multiple survey indices.  Small cap outperformed mid and large cap stocks as investor sentiments were high.  Energy, utilities, and healthcare sectors outperformed industrials, consumer defensive, and technology sectors.

Outside the U.S., things were not so great as investors had renewed concerns about the euro zone’s economic condition and the escalating geopolitical crisis between Ukraine and Russia.  International developed stocks underperformed U.S. stocks.  The MSCI Pacific index declined -0.68%, 94 bps below the MSCI Europe index’s 0.26% for the week. Emerging markets stocks held up relatively better than the EAFE markets but were quite a bit behind U.S. equity markets.  Within the emerging markets, the MSCI BRIC index was flat, underperforming the MSCI EM index.  The EM Latin America region as a whole outperformed emerging countries in Europe and Asia.

BarCap U.S. Aggregate Bond index was up 36 bps.  Bonds held up well despite strong domestic economic data and new highs in the domestic equity markets.  Bonds were supported by the escalating geopolitical risks in Ukraine and the ECB President Mario Draghi’s concern about Japan-like deflation threatening the euro zone.  Compared to the above 3% yield level at the beginning of the year, the U.S. 10-year Treasury yield was edging down 5 bps to 2.35% from a week ago.  Short-term bonds underperformed long-term bonds.

Measured by the Citi Non-U.S. World Government Bond index, foreign-developed sovereign bonds were up by 49 bps, on par with emerging market bonds’ return of 51 bps.

U.S. REITs were up 52 bps, beating foreign REITs by 98 bps in the week.  Commodity returns were strong, up 92 bps as measured by the Bloomberg Commodity Index (former DJ-UBS index), but lagged the energy-heavy S&P GSCI Commodity index’s weekly return of 1.32%, as energy outperformed

 

Period ending 8/29/2014 1 Week (%) YTD (%)
DJIA 0.63 4.84
S&P 500 0.80 9.89
Russell 2000 1.24 1.75
MSCI-EAFE -0.06 2.53
MSCI-EM 0.44 8.50
BarCap U.S. Aggregate 0.36 4.81

 

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
8/22/2014 0.03 0.53 1.68 2.40 3.16
8/29/2014 0.03 0.48 1.63 2.35 3.09

 

 

 

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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