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Weekly Review - April 25, 2016

Weekly Review - April 25, 2016

Guest Post - Monday, April 25, 2016


  • Economic data for the week was focused on several housing stats, including higher home prices, existing home sales but lower starts and building permits. Jobless claims fell to multi-decade lows, which was good news for the labor market.
  • Stocks rose on the week with decent earnings reports and higher energy prices. Bonds lagged due to higher interest rates.

Economic Notes

(-) The Philly Fed survey for April fell to -1.6, in a reversal from the improved prior month back into contractionary territory, contrary to expectations of a gain to +9.0. The underlying components of the survey declined as well, particularly in new orders, shipments and employment.

(0) The FHFA house price index for February rose +0.4%, which was on par with expectations. Of the 9 regional sectors, the Mid-Atlantic and Pacific led with gains of +1.7% and +1.0%, respectively, while the South Atlantic (DC south to FL) and East South Central (KY, TN, MS, AL) were the sole decliners. Year-over-year, the national index rose +5.6%, which remains strong on both a nominal and (especially) real after-inflation basis.

(+) Existing home sales rose +5.1% in March to 5.33 mil. seasonally-adjusted annualized units, which surpassed the expected +3.9% and represented a rebound from a sharp decline the prior month. Single-family led with a +6% increase, while multi-family rose +2%. Regionally, all four U.S. segments gained, with the Northeast and Midwest leading the way, with both gaining around +10%. Inventory levels appear relatively tight at 4.4 months' worth of sales. Interestingly, the level of sales currently is back up to where it was in roughly the 2001 period, which was considered to be a more typical growth environment for housing, prior to the bursting of the tech bubble and housing-based bubble in years subsequent. While better, sales numbers overall remain low when demographic growth is considered, and higher pricing appears to be at least partially due to tighter inventories of existing housing in key cities, as new home building continues to plod along at a slower, more tempered pace than during the last cycle.

(-) Housing starts for March fell -8.8%, which was dramatically below the forecasted decline of -1.1% in this notoriously volatile series. Single-family and multi-family both fell within a percent of each other, so neither under- or out-performed. Building permits similarly fell -7.7%, which was below the forecasted gain of +2.0%. Multi-family was the culprit here, falling -19%, while single-family only dropped a percent. However, this data series is so volatile that shorter-term month-to-month changes have to be discounted somewhat.

(0) The NAHB homebuilder sentiment index for April came in unchanged for several months in a row at 58, which was a point below consensus forecast. Current sales fell a few points, while future expectations bumped up a point. By region, the Southern and Western U.S. remained flat from a sentiment standpoint, while the Northeast and Midwest experienced declines.

(0/+) The Conference Board's Index of Leading Economic Indicators for March increased by +0.2%, reversing several consecutive months of minor declines. This was led by several positive financial contributors (stock price and interest rate spread recovery), while building permits were a detractor. The March coincident indicator was unchanged, following several months of increases; the lagging indicator rose +0.4%, continuing several months of gains. The LEI for the past 6 months have seen a rise in the index of +0.7%, which is positive, but at a slower pace than the +1.5% increase over the prior 6-month period—the graph depicts this deceleration well.

Leading Economic Index Over Time

(+) Initial jobless claims for the Apr. 16 ending week fell by -6k to 247k, well below the 265k expected by consensus, and, in fact, to the lowest level since 1973. Continuing claims for the Apr. 9 week also fell, to 2,137k, lower than the 2,173k anticipated. No special factors were reported, but recent weeks could be affected by spring break factors somewhat. As claims have been hovering at very low levels in recent months along with the unemployment rate, views are now turning to when this trend might reverse. As employment has a bit of a lagging indicator tendency, seeing deterioration (if a while off) could be an accompanying component of business cycle fatigue.

Read the "Question of the Week" for April 25, 2016:

Where do we stand with inflation?

Market Notes

Period ending 4/22/2016

1 Week (%)

YTD (%)




S&P 500



Russell 2000









BarCap U.S. Aggregate



U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.



















U.S. stocks generally gained on the week with stronger-than-expected earnings numbers and a boost in commodity prices. With a fifth of the S&P reporting during the week, over 80% of earnings numbers came in above expectations, including several blue chip industrial and consumer firms. Cyclical sectors financials and energy, along with health care, led by rising several percent on the week, while defensive utilities and consumers staples lost a few percent.

Foreign stocks outperformed U.S. names, despite a slightly stronger dollar on the week. The ECB met and left key interest rates and pace of QE asset purchases unchanged, although Draghi's comments were tinged with a negative tone—implying risks were on the downside and deflation could re-emerge in the near-term—although the program overall appeared to be working. The largest gains were seen in the European periphery, with Draghi's pessimistic language from Draghi leading investors to assume more stimulus there, while commodity-sensitive nations, such as Russia, Canada, Norway and a few other emerging market names, gained with stronger pricing in oil and the commodities group as a whole as of late. Only a fraction of European stocks have reported earnings so far, and, like in the U.S., results have been better than expectations (although expectations have been repeated slashed throughout the quarter). Japan fared well, despite a major earthquake raising concerns over manufacturing disruptions there, and was buffered by the positive impact of a weaker yen. Brazil and China underperformed the group, with losses in the single-digits, due to continued political uncertainty in the former and a spike in corporate debt defaults in the latter.

U.S. bonds lost ground as a 'risk-on' environment also pushed up interest rates. However, corporates fared better than governments, with high yield performing decently as credit spreads contracted—partially helped by higher oil prices. In foreign bond markets, developed market debt in Europe sold off somewhat in response to non-action by the ECB. Interestingly, Argentina held an offering of $16.5 bil. in new debt (rated B-, with yields ranging from 6.25% to 8.00%). This was its first entry back into world bond markets in 15 years (and following contentious and long-lasting litigation after the nation's 2001 default), which was oversubscribed by four times—demonstrating strong investor demand. Perhaps this is another demonstration of global investors' frantic search for yield wherever it can be found.

Commodities rose on the week, on the back of crude oil, which gained roughly $2/barrel to end at just under $44—its highest level since last November. This is despite last weekend's OPEC meeting in Doha which did not result in the production cuts some had expected; however, rig counts continue to show decreased production on the domestic side and hope for some type of production agreement in an upcoming meeting in Russia was encouraging. The industrial metals and agricultural groups rose to a somewhat lesser degree, while precious metals ended flat. Year-to-date, energy and precious metals are now nearly tied for leadership with each segment up over +15% since year-end. Unsurprisingly, investor sentiment towards the asset class has improved dramatically over the last few months compared to abundant pessimism at year-end.

In other bond news, the Saudis announced that they could liquidate as much as $750 bil. of their U.S. Treasury bond holdings and other U.S. assets if Congress moves forward with a proposed bill revoking sovereign immunity and allowing victims of 9/11 to sue the Saudi government for any found involvement. While this worst-case scenario is viewed as less likely, this remains the type of market risk that isn't captured through inflation or earnings data. Naturally, a sell-off on treasuries would depress prices and push interest rates higher.

Have a good week.

Sources: FocusPoint Solutions, 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. FocusPoint Solutions, Inc. is a registered investment advisor.

Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.

Additional Reading

Read the previous Weekly Review for April 18, 2016.

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