Economic Update 6-01-2015

• Economic data from last week was lackluster on the manufacturing front, with poor durable goods and PMI figures, as well as a negative shot to sentiment with a negative 1^stquarter GDP growth revision, while housing and consumer confidence improved.

• Equity markets experienced a negative week globally, with the mixed economic news and uncertainty over European negotiations with Greece. Being a risk-off week, bonds were the sole positive group, with U.S. debt faring better than foreign with the dollar coming off stronger. Commodities were down slightly, although oil experienced little volatility.

U.S. stocks fell on the week, with lackluster economic data resulting in lessened confidence.  Health care and utilities came in strongest, with barely a loss registered, while energy and industrials lost up to -2% on the week.

Foreign stocks performed a bit better than domestic in local terms, but lost about a percent of that back due to a stronger U.S. dollar.  A boatload of economic data from Japan came out last week, and on net, growth wasn’t exceptional, but progress is better than some expected.  Retail sales rose, +5% year-over-year, bucking the trend of several consecutive months of declines although the sales tax increase remains a drag.  Labor conditions are also robust, with the unemployment rate falling to 3.3%, which was the best result in about 8 years (although labor force supply there is much tighter than in the U.S. for demographic reasons).  CPI disappointed somewhat, at +0.6%, but came in above zero, which is always a psychological tipping point for economics and bankers.  Worst performers included Brazil and Russia, as well as South Africa, which all have a tendency of trading with commodity sentiment.  Chinese equities experienced more volatility as yet tighter trading restrictions were implemented.

U.S. bonds gained on the week, with flight to quality away from equities benefitted the general group—resulting in lower rates on the order of 10b.p.’s across the yield curve.  Consequently, long treasuries gained several percent in that environment, and the intermediate/core group all performing in line, whether government or credit.  Foreign bonds fared strongly in local terms, but this translated to negative returns when adjusted for the dollar’s impact.

Real estate in the U.S. generally fared as negatively as broader equities, however, there was more dispersion on the week than normal, with mortgage REITs gaining a bit upon lower interest rates, residential/apartments barely losing ground, while industrial/office suffered a bit more than the general index.  Foreign REITs in all areas fared significantly worse, with the dollar effect removing an extra percent from returns on the week.

Commodities, as measured by the GSCI, lost just over a half-percent on the week—odd in that returns were driven by the more extreme performances of individual commodities rather than crude oil, which fell mid-week upon further cuts in rig counts, but regained ground back to where it started, around $60.  The big negative contributors were wheat, corn and sugar, in reaction to stronger crop estimates (not uncommon for this time of year—if they happen), and industrial metals, which are sensitive to Chinese slowdown concerns.  Despite a still-terrible trailing 12-month return figure, the GSCI is essentially flat year-to-date, after all the ups and downs in between.

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.