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Weekly Review - April 3, 2015

Weekly Review - April 6, 2015

Guest Post - Monday, April 06, 2015


  • Despite being a shortened holiday week, it was busy due to a number of economic data releases. Good news came from upside surprises in factory orders, firmer housing data and a better consumer confidence reading; bad news came from weaker job reports and disappointing manufacturing survey results.
  • U.S. equity markets pulled back on the last day of the first quarter as profit-taking and quarter-end window-dressing activities took place. Emerging market stocks outperformed both U.S. and EAFE stocks. Bonds performed similar to stocks as weaker economic data supported yield trending down. REITs were flat and commodities lost ground.

Economic Notes

(-) Total nonfarm payroll employment grew only by 126k in March, roughly half of the consensus expectation of 248k. Jobs increased across professional and business services, health care and retail trade. However, mining and logging lost 11,000 jobs in March, mainly concentrated in support activities for mining, such as oil and gas extraction. The labor force participation rate ticked down by one- tenth of a percent to 62.7% in March, trapped in a narrow range between 62.7% and 62.9% since April 2014. The unemployment rate stayed at 5.5%, in line with the consensus expectation. The broader measure of labor underutilization, the underemployment rate (U-6 Total unemployed), edged down from 11.0% in February to 10.9% in March.

(+) Initial jobless claims for the week ending March 28th came in at 268,000 after seasonal adjustment, which was better than the 285,000 consensus expectation. The 4-week moving average was 285,500, decreasing from the previous week's revised average by 14,750. Continuing claims for the week of March 21st decreased 88,000 to 2,325k, less than the consensus view of 2,423k. This is the lowest level since December 16, 2000, when continuing claims stood at 2,322k. The 4-week moving average of continuing claims continued to edge lower to 2,387,750.

(0) Personal income for February was up 0.4% month-over-month. Stronger growth in rental, interest, dividend and transfer income boosted the income growth rate, exceeding the consensus expectation of 0.3%. Meanwhile, personal consumption expenditures (PCE) grew only 0.1%, below the consensus expectation of 0.2%. As a result of income growth outpacing the spending rate, the personal saving rate ratcheted up to 5.8% in February from January's 5.5%. The fact that consumers still prefer saving to spend could be bad for the domestic economy because 70% of GDP comes from consumer spending. The Fed's preferred inflation measurement, the PCE price index, increased 0.2% in February. The core PCE price index, excluding food and energy, was up only by 0.1%. Both price measurements were in line with the consensus view. On a year-over-year basis, the PCE price index and the core index grew 0.3% and 1.4% respectively, well below the FOMC's target of 2%.

(+) Factory orders for February grew 0.2%, beating the consensus expectation of a -0.4% decrease. The upside surprise was attributed to a 1.8% increase in new orders for manufactured nondurable goods and was dragged by a decline of 1.4% in new orders for durable goods. Shipments for Core Capital Goods, defined as nondefense capital goods excluding aircraft, was up 0.3% monthly in February while January was revised down from +0.1% to -0.6%. Because economists use trends of core capital goods as an indicator of future economic growth, it is assuring to see core capital goods shipments growing.

(-) The ISM Manufacturing (PMI) index declined 1.4% from February's 52.9% reading to 51.5% in March, weaker than the consensus expectation of 52.5%. Compared to the month of February, major components of the index - such as new orders (down 0.7 points to 51.8%), employment (-1.4 pts to 50%), supplier deliveries (-3.8 pts to 50.5%) and inventory (-1.0 pts to 51.5%) - saw slower growth while only production increased slightly to 53.8% from 53.7% a month ago. Some negative factors mentioned in the report include dollar appreciation, delays at West Coast ports, weather, and higher healthcare premiums.

(-) Chicago Business Barometer (Chicago PMI) index was up slightly from a record low reading of 45.8 in February to 46.3 in March, yet significantly missed the consensus forecast of 52. A second consecutive below-50 reading signals a loss of momentum for manufacturing activity in the region. Harsh weather and the lingering impact of the West Coast ports' strike were partially responsible for the continued weakness in March. As the largest weighted component of the index, new orders increased slightly but were still in contraction mode. However, 56% of purchasers surveyed expected to see a pick-up in new orders in the second quarter.

(+) The Pending Home Sales (PHS) Index published by the National Association of Realtors surged 3.1% to 106.9 in February, significantly higher than the consensus expectation of a 0.4% increase. The index stands at its highest level since June 2013 and is 12% higher compared to the level a year ago. By region, pending home sales were boosted by the Midwest (up 11.6% month-over-month) and the West (up 6.6%) in February. The Northeast and South saw pending sales fall 2.3% and 1.4% respectively.

(+) The S & P/Case-Shiller Composite of 20 Home Price Index for January increased 0.87% month over month, beating the forecast of +0.65%. All 20 cities in the index reported monthly price increases for typical single-family homes located in each metropolitan area. San Diego and Portland registered the largest price increase, up 1.9% and 1.5% respectively. Meanwhile, Atlanta and Las Vegas saw the least price appreciation, at 0.3% and 0.4% compared to December 2014 after seasonal adjustment. Year-over-year, the index gained 4.6% with Denver up the most at 8.4% and Washington up the least at 1.3%.

(+) The Conference Board Consumer Confidence Index was up to 101.3 (1985=100) in March from an upwardly-revised 98.8 in February. The reading largely exceeded the consensus expected 96.5. The improvement benefited the most from a 6-point jump in consumer confidence for future condition, standing at 96.0 in March. However, consumers became less sanguine of the current conditions, reflecting a slight decrease from 112.1 in February to 109.1 in the Present Situation index. The percentage of consumers claiming business conditions are “bad” increased from 16.7% to 19.4%, while those claiming “good” business conditions were unchanged at 26.7%. Overall though, the index in March is close to its post-recession high of 103.8 seen in January.

Market Notes

Period ending 4/03/2015

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.



















It was a choppy week with the first quarter-end sandwiched in the middle. Earlier in the week, domestic equity markets bounced back sharply from the prior week's sell-off. However, soft economic data and quarter-end profit-taking activities brought the market down to earth after March 31st. Small cap stocks outperformed large cap peers as investors were concerned that strong dollar strength might be hurting large companies more. Meanwhile, Alcoa will release its first quarter financial results on April 8th, kicking off the upcoming earnings season. Within the S & P 500 index, utilities, telecom, and consumer discretionary sectors outperformed; healthcare and technology lagged.

Outside the U.S., international developed stocks underperformed U.S. stocks. The MSCI Pacific index declined -0.43%, behind the MSCI Europe index's +0.51% for the week. For the year-to-date, Pacific outperformed Europe by 3.63%. Emerging market stocks rallied, outperforming both U.S. and EAFE markets. Within the emerging markets, the MSCI BRIC index was up 6.28%, 2.5% ahead of broad EM markets. The EM Latin America region as a whole outperformed emerging countries in Europe and Asia.

The BarCap U.S. Aggregate Bond index was up 56 bps last week, a similar performance as domestic large cap stocks. Treasuries received better pricings during the shortened holiday week as weaker job reports and manufacturing data supported the government bond markets. The U.S. 10-year Treasury yield fell 10 bps to 1.85% from a week ago, breaking the 1.90% resistant level. Long-term bonds beat short-term bonds.

Measured by the Citi Non-U.S. World Government Bond index, foreign-developed sovereign bonds were off by -9 bps, underperforming emerging market bonds by 110 bps.

U.S. REITs were essentially flat, down 3 bps, but slightly outperforming foreign REITs by 17 bps in the week. Commodity returns were down 1.34% as measured by the Bloomberg Commodity Index (former DJ-UBS index), beating a total return of -3.01% from the energy-heavy S & P GSCI Commodity index as energy lost ground. A possible nuclear deal with Iran could lift sanctions and boost Iran's oil supply to the global market, which would pressure the price down.

Have a good week.

Jiangning (Jen) Plett, CFA, CAIA
Portfolio Manager
FocusPoint Solutions, Inc.

Sources: FocusPoint Solutions, Barclays Capital, Bloomberg, Conference Board, Goldman Sachs, ISM, JPMorgan Asset Management, Marketfield Asset Management, MFS, MNI Indicators, MSCI, Morningstar, National Association of Realtors, Payden & Rygel, S & P Dow Jones Indices, T. Rowe Price, U.S. Bureau of Economic Analysis, U.S. Department of Commerce, U.S. Department of Labor, U.S. Department of the Treasury, U.S. Federal Reserve, Vanguard, Yahoo!. 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 March 30, 2015.

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