Weekly Economic Update

Economic Update 3-02-2015

  • Economic data was mixed on the week, with housing figures relatively flat on net, inflation coming in weaker on a headline level due to the impact of lower energy prices, and tempered results in other areas. Adjusted GDP results for Q4 of 2014 notched downward a bit, which reflects this slower patch.
  • Equities gained on the week, with foreign stocks outperforming domestic. Bonds generally experienced a positive week upon a retraction in longer-term interest rates.  Although oil prices were mixed to lower, commodity indexes gained upon the heels of higher gasoline prices.

U.S. stocks ended up mixed on the week with low volatility and few newsworthy events to move the needle dramatically in either direction, other than assumptions about Janet Yellen’s interest rate ‘patience’ pushing things in a dovish direction.  From a sector standpoint, consumer staples and discretionary stocks outperformed, while energy and industrials lagged with negative returns—energy due to lower oil prices as inventories rose.

Foreign stocks generally gained, and outperformed U.S. issues, with developed markets leading the way (both Europe and Japan, although the U.K. also gained).  The start of the ECB’s quantitative easing program perhaps boosted sentiment, while the Japanese economy has experienced stronger industrial production and export reports.  In emerging markets, Latin America led while Russia and Turkey again served as the laggards.  China performed decently as additional stimulus in the form of lower interest rates was announced.

Bonds declined on the week with a dovish tone set from Janet Yellen during her testimony, causing bond investors to breathe a sign of relief for another week.  Long bonds fared best, with rates much lower on the long end of the curve, but most fixed income ended up in positive territory.  Developed European bonds were higher as investors prepared for the ECB’s quantitative easing to begin, while 5-year German bond yields ended up in the negative with deflationary concerns and hopes for further easing.  The dollar was about a percent stronger against developed market currencies, but flat on net versus emerging markets.  In EM, further Russian downgrades as well as a major downgrade of two notches for Petrobras in Brazil raised spreads although the inflows to EM debt were the largest in a year last week.

Real estate markets performed in line with equities, with REITs from the U.K. and developed Europe gaining ground by up to several percent, while U.S. REITs fell by just over a percent.  European REITs are naturally tied to business activity, so it’s hoped that fundamentals—like tenant demand and rents—will improve with additional stimulus.  On lower interest rates, mortgage REITs actually ended up in the positive, while apartment and health care REITs lost the most ground.

Commodity indexes gained just over a percent on the week, despite dollar strength.  Unleaded gasoline gained over +5% (making the year-to-date reversal upward over +35%)—first quarter spikes in price are typical as production falls towards early spring in anticipation of routine maintenance and changeovers to summer blend gasoline, but a recent explosion in a California refinery didn’t help.  The price of West Texas crude bounced around within just a few dollars during the week, before finishing just below $50/barrel.

 

Period ending 2/27/2015 1 Week (%) YTD (%)
DJIA 0.02 2.22
S&P 500 -0.24 2.57
Russell 2000 0.16 2.53
MSCI-EAFE 1.09 6.50
MSCI-EM 0.59 3.55
BarCap U.S. Aggregate 0.65 1.14

 

U.S. Treasury Yields 3 Mo. 2 Yr. 5 Yr. 10 Yr. 30 Yr.
12/31/2014 0.04 0.67 1.65 2.17 2.75
2/20/2015 0.02 0.67 1.61 2.13 2.73
2/27/2015 0.02 0.63 1.50 2.00 2.60

 

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. 

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