Economic Update 11-09-2015

• Economic data came in a bit better than expected on average, with the ISM non-manufacturing index and the October employment report surpassing expectations.  Conditions were less appealing on the manufacturing side, as ISM manufacturing, factory orders and related data continued to show some softness.
• Domestic equity markets rose on expectations of a solid jobs report, while foreign equities generally lost ground with some negative impact from a stronger dollar.  Bonds fell back on rising interest rates, with corporates outperforming longer-term government debt.  Commodities, including crude oil, experienced weakness, due to dollar effects and lack of any positive catalysts.

U.S. stocks generally rose during a bumpy week, as signs of life from ISM non-manufacturing data and a very positive employment report on Friday spurred sentiment higher.  From a sector standpoint, financials and energy led with gains of several percent each, while utilities lost ground.  This isn’t a surprising pattern considering interest rate dynamics—yields moving higher over the week.

Foreign stocks experienced a mixed week.  Emerging market ‘BRICs’, including China, Brazil and Russia.  Weakest showings originated from developed market nations in USD-terms, including in Japan, Europe and the U.K.

U.S. bonds lost ground as interest rates rose sharply, mostly on Friday, as the positive employment report raised the market-implied probabilities of a December Fed rate hike.  On the positive side, floating rate, high yield corporates and GNMAs held up quite a bit better, while long duration governments and TIPs suffered a bit worse than the BarCap Agg.  Outside the U.S., the strength in the dollar played the primary role, so USD-denominated debt outperformed local debt on the order of several percent, with USD developed market and emerging debt experiencing minimal losses on less interest rate volatility as seen in the U.S.

Real estate experienced a mixed but generally negative result, with U.S. indexes falling several percent, with higher interest rates weighing on sentiment—a common short-term phenomenon. Foreign indexes experienced sharper losses with the dollar effect.

Commodity indexes generally fell on the week, in line with a stronger dollar.  Industrial metals fared best with losses, while precious metals lost quite a bit of ground (with higher interest rates and hike probabilities, which hurt relative demand for gold/silver).  Crude oil moved upward mid-week by a few dollars after Baker Hughes rig counts hinted towards declines in production, before falling again in broader commodity weakness, at just over $44.

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.