Economic Update 5-26-2015
- Economic results were again mixed, with some improvement in housing, tempered overall but higher core CPI inflation readings and stronger jobless claim data.
- U.S. equity markets on average were slightly higher, while foreign equities ended up negative due to the influence of a stronger U.S. dollar that eroded the impact of a much better week in local terms. Higher interest rates generally pressured bonds and real estate, while commodities also lost some ground on average.
U.S. stocks ended the week just barely higher, with small-caps outperforming large-caps on the week. From a sector standpoint, growth sectors health care and technology gained, while consumer staples fell by a percent, lagging the pack. Reports from some larger retailers weren’t received overly optimistically, nor were comments from airlines about more aggressive additions to capacity and possible fare wars. M&A activity and rumors continued to percolate, notably in health care and tech, although movements have been felt in other areas, such as retail, as well.
Foreign stocks weakened with a U.S. dollar that strengthened by about +3%. In local terms, both European and Japanese stocks gained over +2% on the week. In Europe, PMI came in lower than expected by half a point, but printed at 53.4, which showed improvement—such improvements this year have buoyed investor sentiments, whether or not ECB stimulus effects have been effective as a cause. Japanese GDP came in at a +2.4% annualized rate, better than expected, while the BOJ voted to maintain the current pace of asset purchases of 80 tril. yen/year, which naturally boosted sentiment there. The largest commodity-oriented countries, including Australia, Norway and Brazil, all lost significant ground on the week, although much of this was due to currency effects.
U.S. bonds ended up with negative returns as interest rose about 0.10% across the bulk of the yield curve—primarily in the 2 to 10 year area. On the positive side, high yield and floating rate were generally flat. With a stronger dollar, particularly vs. developed market currencies, foreign bonds came in negative.
Real estate in the U.S. lost ground, no doubt hindered by higher interest rates, while Japanese REITs fared far better with continued easing policy and European names lagged with a stronger dollar effect.
Commodity indexes fell several percent during the week, coinciding with rise in the dollar. WTI crude oil fell by several dollars mid-week before recovering to just under $60 by Friday. The chart over the previous month continues to show a gradual consolidation between $55 and $60 over the last month, with less volatility than we’ve been used to over the past year. On the week, wheat was the only positive performer, gaining almost a percent, while industrial metals saw the most extensive weakness. Continuing concerns over Chinese demand continue to weigh on this segment.
|Period ending 5/22/2015||1 Week (%)||YTD (%)|
|BarCap U.S. Aggregate||-0.48||0.38|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
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.