Economic Update 7-13-2015

• In a fairly light week for the economic calendar, data was highlighted by a decent ISM services survey, good JOLTs employment data, but higher claims.  The Greece situation remained as the primary global headline, while Chinese stock meltdown and pourover concerns took second place.

• Despite higher interday volatility, U.S. equity and fixed income markets ended the week generally flat after all was said and done, as were foreign developed market equities.  Emerging markets and commodities generally sold off with carryover concerns surrounding China.

U.S. stocks experienced an interesting week with a lot more volatility than we’ve been used to, coupled with a technical glitch on Wednesday that halted trading for several hours (it was deemed an internal software issue as opposed to a cyberattack). Markets recovered by Friday, with improved hopes for a Greece/Euro settlement as well as Chinese government intervention into local stock markets. After all that, net results were flat. From a sector standpoint in the U.S., defensive consumer staples (drug store, tobacco, beverage, et. al.) and utilities outperformed with solid gains of 1-2%, while materials (industrial metals-oriented due to presumed China impact) and energy brought up the rear with losses over -1%.

The dollar weakened a bit, but not enough to help foreign stocks and bonds in a significant way. European equities, including peripherals such as Spain and Portugal, gained with hopes of a Greek resolution. Emerging markets on net underperformed developed markets. Areas of weakness were in the Pacific region, including Japan, as well as Indonesia and other commodity exporting nations potentially affected by China. Chinese equities declined dramatically again early in the week (with the losses reaching 30% over the past month in local markets) but saw signs of life as government support boosted sentiment, which led to a +5% on the week on net. Chinese CPI also came in better than expected, up +1.4% year-over-year, but is still low enough to provide credence for more government accommodation.

U.S. bonds were little changed on net, with rates ending close to where they started, although they moved nearly a quarter percent in between. High yield corporates and TIPs lagged a bit more than average. Foreign bonds came in positively by a fraction of a percent on average, outperforming U.S. names and a more significant flight-to-quality impact.

Real estate gained on the week, with U.S. names generally outperforming foreign—led by strength in healthcare and residential.. Japanese and other Asian REITs weakened along with general negative sentiment in Asia.

Commodities, represented by the GSCI, fell over -4% on the week, led by declines in energy. West Texas Crude fell from the $56.50 range down to just under $53 to close the week, as U.S. rig counts and global production from OPEC continued to tick upward. Industrial metals also softened, in an area that has been very China-demand focused in recent quarters. Corn and sugar gained on the week, while precious metals ended up being the best-performing overall group, with only nominal losses and plenty of geopolitical uncertainty that usually benefits the gold and related contracts.

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.