The H Group Blog

Investment and Financial Planning news from some of the best in the business.

Weekly Review - December 29, 2014

Weekly Review - December 29, 2014

Guest Post - Monday, December 29, 2014

Summary

  • During the holiday-shortened trading week, we received some upbeat economic news: The Q3 real GDP growth rate was revised up significantly more than expected, consumer confidence reached the highest level in eight years, and seasonally adjusted initial jobless claims continued to edge downward.
  • Amid positive economic developments, we saw a slightly disappointing durables report, some softness in the housing data and limited personal income growth versus the pace of consumer spending.
  • A strong GDP report helped fuel last week's Santa Claus rally. Domestic stocks continued to swing up while the Dow topped 18,000 for the first time. Foreign stocks slightly lagged behind, bonds retreated, REITs' performance was up more than 1%, and commodities were down for the week.

Economic Notes

(+) Third-quarter real gross domestic product (real GDP) was revised up from 3.9% to an annual rate of 5%, significantly above the consensus expectation of 4.2%. Personal consumption expenditures (PCE) and nonresidential fixed investment contributed the most to the upward revision, each adding an increase of 0.7% and 0.2% respectively from the prior estimate.

(-) New orders for manufactured durable goods in November declined 0.7% month-over-month to $242.3 billion, missing the consensus growth rate of 2.8%. The downside surprise was mainly due to a 1.2% slump in new orders of transportation equipment, especially reflecting a 7.8% decline in new orders of defense aircraft and parts after a surge of 43.5% in October. Excluding the volatile transportation component, new orders decreased 0.4%, below the consensus expectation of a 1% gain. Excluding defense, new orders were only down one-tenth of a percent. Without seasonal adjustment, the year-to-date new orders sales have risen 6.7% to $2.67 trillion on a year-over-year basis.

(-) Compared to October, existing-home sales in November declined 6.1% to a seasonally adjusted annual rate of 4.9 million, which was lower than the consensus expected annual rate of 5.2 million. The month-over-month drop marked the lowest annual sales pace since May, but November's sales were still up 2.1% from a year ago. Seasonal tightening in housing supply and stock market swings in October contributed to choppy sales activity across the nation in November. Existing-home sales fell in all regions with the West and the Midwest experiencing the largest decline by 9.6% and 8.9% respectively.

(-) According to the U.S. Census Bureau's sample survey estimate, sales of new single-family houses in November were down 1.6% monthly to a seasonally adjusted annual rate of 438k units; this missed the consensus estimate of an 0.4% increase to 460k units. In addition, the agency also revised October sales from 458k to 445k. Last month's new home sales were 1.6% lower than the estimate of 445k registered in November 2013. All regions posted a monthly sales decline except the West. New home sales in the Northeast decreased the most by 12% from the prior month and were down 33% from the prior year. The inventory of new homes for sales eased slightly from August to October but remained relatively tight with a 5.8-month supply at the current sales pace.

(+/0) The Federal Housing Finance Agency's House Price Index (HPI) rose 0.6% in October, exceeding the consensus expectation of +0.3% monthly appreciation rate. States in the South Atlantic and East North Central census divisions saw the largest monthly price gains of 1.5% and 1.1% respectively. Nationally, U.S. house prices appreciated 4.5% from a year ago. The HPI index is roughly at the same level as of September 2005, still 5.1% below its April 2007 peak price level.

(-/0) Personal Income in November grew 0.4% from October's revised upward rate of 0.3%, which was slightly below the consensus expected increase of 0.5%. Consumer spending measured by personal consumption expenditures (PCE) outpaced personal income growth. The PCE was up 0.6% in November, one-tenth of a percent higher than the market's expectation. Stronger core retail and auto sales and higher spending on household utility bills due to colder-than-normal weather contributed to higher PCE. Personal savings as a percentage of disposable personal income dipped slightly to 4.4% in November from 4.6% in October.

(-/0) The headline price index for PCE was down 0.2% month-over-month in November. Excluding food and energy, the core PCE price index increased less than 0.1%. Over the last 12 months, headline PCE prices in November trended down from October's 1.4% to 1.2% and the core price index was up 1.4%. Both measurements are well below the Fed's 2% target, largely due to the recent pricing collapse in energy goods and services. Inflation continues to be muted.

(+/0) The final University of Michigan Consumer Sentiment index for December came in at 93.6, slightly lower than both the preliminary estimate and the market consensus of 93.8. The headline index rose 5.4% month-over-month and 13.5% year-over-year. Consumer confidence reached the highest level of the Sentiment index since January 2007. Most of the improvements came from higher confidence in consumer expectations in 2015, such as improving jobs and wages prospects plus benefits from recently declining gasoline prices. Overall, the survey data suggests an increase of 3% in consumer expenditures next year.

(+/0) Initial jobless claims for the week ending Dec. 20 came in at 280k after seasonal adjustment. The reading improved more than the consensus forecasted figure of 290k. The four-week moving average was 290k. There were no special factors explaining the latest initial claims. Continuing claims for the week ending Dec. 13 came in at 2,403k, which was slightly higher than the 2,358k expected. For the week ending Dec. 6, 2.41 million people depended on government support, which were roughly 1.87 million fewer people than in the comparable week in 2013.

Market Notes

Period ending 12/26/2014

1 Week (%)

YTD (%)

DJIA

1.40

11.47

S&P 500

0.90

15.30

Russell 2000

1.64

5.75

MSCI-EAFE

0.46

-4.11

MSCI-EM

0.84

-5.00

BarCap U.S. Aggregate

-0.19

5.58

U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.

12/31/2013

0.07

0.38

1.75

3.04

3.96

12/19/2014

0.04

0.67

1.66

2.17

2.77

12/26/2014

0.01

0.73

1.75

2.25

2.81

Domestic stock markets continued their upswing after investors received the stellar news that final Q3 real GDP grew at 5% annualized clip - the fastest pace of growth in 11 years. Including the Q2's 4.6% pace, the six-month economic performance marked the strongest back-to-back quarterly growth rates since 2003. The U.S. equity market extended the prior week's sharp rally and had a nice Santa Claus run-up. The Dow Jones Industrial Average index gained 249 points during the week and surpassed the 18,000 level for the first time. Meanwhile, the S&P 500 index almost touched the 2,100 level and went on breaking off its all-time-high closing record. With dividend income, the S&P 500 index returned 15.3% for the year to date, on track to finish with its third double-digit return in a row. U.S. value stocks outperformed growth stocks. Small cap stocks outperformed both mid and large cap stocks. Within the S&P 500 index, the utilities, consumer discretionary, telecom and consumer staples sectors led the market, while the health care and energy sectors retreated and had negative weekly returns.

Outside the U.S., EAFE and emerging market stocks lagged domestic stocks. The MSCI Pacific index was up 64 bps, outperforming the MSCI Europe index by 26 bps. Within emerging markets, the MSCI EM Europe index rallied the most by 3%, outpacing both the MSCI EM Asia and Latin America indices.

Bond markets slipped to slightly negative returns on the strong GDP report. The BarCap U.S. Aggregate Bond index was down 19 bps. The yield on the U.S. 10-year Treasury note slightly increased from 2.17% to 2.25% in the week. Long-term government bonds underperformed. Foreign-developed sovereign bonds declined 62 bps as measured by the Citi Non-U.S. World Government Bond index, lagging the emerging market bonds' positive return of 0.33%.

Foreign REITs returned 1%, underperforming U.S. REITs by 25 bps in the week. The energy heavy S&P GSCI Commodity index declined 2.62%, worse than the more diversified Bloomberg Commodity index by 62 bps. At the beginning of the week, the IMF released its simulation analysis of the impact on the global economy from the recent oil price slump. It estimated that faltering oil prices would boost the world GDP by 0.3 to 0.7% in 2015, on average pushing global economy's growth rate above 4%.

We appreciate your partnership. Wish you a prosperous New Year!

Sources: FocusPoint Solutions, Barclays Capital, Bloomberg, Federal Housing Finance Agency, Goldman Sachs, Marketfield Asset Management, IMF, MFS, Morningstar, MSCI, National Association of Realtors, Payden & Rygel, S&P Dow Jones Indices, Thomson Reuters/University of Michigan Surveys of Consumers, 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, Value Line, 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 December 8, 2014.

Trackback Link
http://www.thehgroup.com/BlogRetrieve.aspx?BlogID=17607&PostID=1379833&A=Trackback
Trackbacks
Post has no trackbacks.

* Required





Subscribe to: The H Group SALEM Mailing List

Archive


Recent Posts