Economic Update 1-5-2015

• The most closely-watched economic releases were the ISM Manufacturing survey and Chicago PMI, which fell from last month and under expectations. Housing/construction data was mixed, while consumer confidence was a bit better.

• Ending the year, both U.S. and developed foreign equities fell, while emerging market stocks and real estate gained. Investment-grade bonds generally gained, while crude oil led commodities down for yet another week.

U.S. stocks ended the week generally lower, with health care and energy suffering the least and tech and utilities down over 2% each.

Foreign stocks were largely down in line with U.S. names, although emerging markets ended up slightly positive.  India and China led the way, the former on hopes for continued reform.  China posted its first contraction of factory activity in seven months, while stocks there gained as the government loosened restrictions on domestic banks in holding foreign currencies.  Greece suffered a loss for the week as the third round of elections ended in the government being dissolved until late January elections.  Russia suffered another terrible week in line with losses in crude oil and reports that GDP contracted -0.5% in November and -0.2% from a year ago.

U.S. bonds gained during the risk-off week on lower rates, mostly in the long-term area.  Treasuries outperformed while short debt, floating rate and high yield lagged by comparison.  Developed foreign bond indexes experienced a strong week on lower rates, notably in Europe with the 10-year German Bund falling to a new low of 0.54%, but evened out to near zero when translated back to U.S. dollars.  Emerging market bonds lost ground in local terms, while USD-denominated EM debt was generally unchanged.

Real estate was up a fraction of a percent, while Asian REITs saw sharp gains and Europe/UK names lost several percentage points on the week.  In the U.S., healthcare, retail and malls were the leaders, while lodging pared back somewhat.

Commodities continued to lose ground, with major indexes down several percent and a stronger U.S. dollar by about a percent or so.  West Texas crude dropped from just over $55 down to $52.80, along with declines from natural gas (which contains more of a weather-related component) and weakness in grain prices.

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.