Weekly Economic Update

Economic Update 7-06-2015

  • Economic results for the week were again mixed, with some manufacturing data showing up better than expected, housing results decent, confidence higher and a mediocre employment situation report at the end of the week.  Most attention was outside of the U.S., on the Greek situation.
  • Equities fell on the week in line with disappointment about the lack of agreement between Greece and the rest of Europe on a bailout plan, while domestic bonds ended slightly above zero as rates fell slightly.  Commodities were also mixed, as agricultural contracts rose dramatically but oil prices declined.

U.S. stocks were down on the week, never recovering from a rough start on Monday (the -2% drop was the most severe in a year), although the technicians might notice that some support was provided by the S&P’s 200-day moving average.  By industry, defensive utilities gained to lead the way, as the only positively-performing sector, while materials and technology lagged by the largest amount.

Sentiment was largely driven by the Greece situation, which we discussed more fully in a separate note last week.  One might have imagined that such a ‘risk-off’ week would have benefitted both the U.S. dollar and treasuries, which happened somewhat.  Now, the Greek election over the weekend regarding the Eurozone’s bailout terms (where the referendum was overwhelmingly rejected) will no doubt affect thoughts over the coming week as alternative solutions to the deepening banking crisis there are sought (we expected more of a reaction this morning than there was).  Soon we’ll have to change focus towards the 2nd quarter earnings season.

Foreign stocks came in a bit weaker than domestic stocks in local currency terms, but even more so when translated back to dollars.  Emerging markets were the winners on the week, with gains from Indonesia, India and Brazil, while peripheral Europe struggled through losses of several percent (the Greek stock market was closed, however, so one could look at a U.S.-traded ETF proxy for that market to gain some price transparency—results were an -8% 1-week loss, the bulk of which was last Monday as a default looked imminent).  Local Chinese stocks also continued to struggle, with the Shanghai market down again (MSCI China was down -4% and China small cap lost over 10% last week).

U.S. bonds were generally flat from a total return standpoint, although interest declined a bit on net across the yield curve.  High yield ended up slightly in the negative on widened spreads.  A stronger dollar on the week (being about a percent higher) resulted in negative results for most foreign fixed income indices.

Real estate in the U.S. bucked the trend of other equities by gaining on the week, led by apartments/residential and lodging.   Foreign REITs struggled, not helped by a stronger dollar.

Commodities were mixed on the week, as agricultural commodities continued to drive higher, upon news of smaller stockpiles from last year, which points to stronger demand.  Energy was the worst-performing group, as crude oil declined a few percent to just below the $57 range—U.S. drillers have boosted production to the highest levels since the 1970’s.

 

Period ending 7/3/2015 1 Week (%) YTD (%)
DJIA -0.84 0.71
S&P 500 -1.16 1.93
Russell 2000 -2.67 4.29
MSCI-EAFE -2.77 6.34
MSCI-EM -1.69 1.59
BarCap U.S. Aggregate 0.02 -0.31

 

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
6/26/2015 0.01 0.72 1.75 2.49 3.25
7/3/2015 0.01 0.64 1.64 2.40 3.19

 

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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