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Weekly Review - February 23, 2015

Weekly Review - February 23, 2015

Guest Post - Monday, February 23, 2015


  • Economic data on the week was mixed to lower, with several key surveys and housing reports coming in weaker than expected. Perhaps more severe winter weather in recent weeks played a bit of a role, and/or we're seeing some flattening in growth acceleration.Economic data on the week was mixed to lower, with several key surveys and housing reports coming in weaker than expected. Perhaps more severe winter weather in recent weeks played a bit of a role, and/or we're seeing some flattening in growth acceleration.
  • U.S. stocks experienced a less volatile week, with prices ending up slightly above where they started after news of a potential deal between Greece and Europe at the end of the week. Interest rates rose, which was a negative for government bonds across the curve, but credit fared better. Commodities lost ground again with choppiness in the oil patch.

Economic Notes

(0/-) The Empire manufacturing report for February fell a bit, from +10 to +7.8, but just a few tenths below expectations. Despite the drop, a positive number signifies growth; albeit at a slower pace. New orders and employment dropped by several points, while shipments increased and 6-months-ahead capex spending expectations/plans rose significantly (doubling, in fact).

(0/-) The Philly Fed survey for February fell a point from the previous month's number, to +5.2, below expectations calling for +9.0 (half of the responding firms reported no change for the month). On the positive side, showing acceleration, were shipments and employment were several points higher, as were capital spending plans; while forward new orders fell, as did expectations for business activity in six months—which declined sharply (interestingly, as plans for orders/shipments/employment/etc. for the next six months increased). Therefore, a bit of a convoluted and mixed report.

(0) The producer price index for January came in -0.8% lower on a headline level (twice the expected -0.4% decline). Removing food and gasoline effects, conditions were more tempered on a core level, falling -0.1% compared to an expected gain of +0.1%. Energy prices falling -10% was the primary culprit, while other segments, such as non-food/energy exports and transports/warehouse services each fell -1% as well (both of which could and likely do contain impacts from lower energy costs passing through). Year-over-year, headline PPI was flat, while core PPI rose +1.6%—these show evidence of dramatically lower energy prices but also tempered inflation pressures in general.

(-) Housing starts in January fell -2.0% to 1.065 mil., which disappointed relative to expectations of a -1.7% decline. Single-family starts represented all negative news with a drop of -7%, as the smaller but more sporadic multi-family segment gained +8%. On the positive side, overall starts were +19% higher than a year ago. Building permits also fell, by -0.7%, compared to an assumed increase of +0.9%. A similar pattern was seen here as well, with single-family falling -3% and multi-family rising +4%. Year-over-year, combined permits are up +8%. Some of the declines here may be weather-related, with January being much worse than December; some of this is hard to capture through seasonal adjustments.

(-) The NAHB housing market index for February came in weaker than expected, falling -2 points to 55 (and below the forecast of 58). Single-family sales and prospective buyer traffic both declined, while sales expectations were generally unchanged. Regionally, the Northeastern segment saw improvement, while the Midwest fell sharply—changes in other areas were less dramatic. Based on past experience, this index tends to predict future months' housing start activity, which has been relatively lackluster as of late.

(0) Industrial production for January rose +0.2%, which was a tick below forecast. The manufacturing component, which represents the bulk of this figure, rose at that same rate; utilities production rose +2% with January being a colder month than in December. The mining component, which also includes oil/gas drilling, fell -1% with energy prices carrying over to lower drilling activity. Capacity utilization came in at 79.4%, which was a half-percent below expectations.

(0) Initial jobless claims for the Feb. 14 ending week fell to 283k, below expectations calling for 290k. Continuing claims for the Feb. 7 week came in a bit higher, to 2,452k, which was +65k higher than expected. There may have been a few weather effects involved here, due to winter blizzards, notably estimated claims in Tennessee. Overall, claims results continue to show a positive trend downward.

(0) Lastly, the FOMC minutes from the January meeting provided more of a dovish tone than some watchers expected. Interestingly, it appeared there was some internal debate regarding potential removal of the word 'patience' from the official statement; however, members seemed to think that might tighten the window of raising rates too tightly. Inflation risks appeared to have increased, as translated through actual reports as well as via lower long-term inflation expectations via TIPs yields (ironically, this can be somewhat of a closed loop, as Fed language can feed this market cycle and yields). Growth estimates appeared to be little changed (raised a bit for 1H2015 due to lower oil prices), although these have been historically less than accurate.

Read the "Question for the Week" for February 23, 2015:

How are things stacking up so far for 2015?

Market Notes

Period ending 2/13/2015

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YTD (%)




S&P 500



Russell 2000









BarCap U.S. Aggregate



U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.



















On a holiday-shortened week, U.S. stocks were generally flat for a good portion until Friday, when news of a possible four-month loan extension for Greece from the Eurozone boosted spirits and lifted prices a bit (although Greece wanted 6 months, and also was required to commit to a few other measures, such as the completion of the current bailout review and not rolling back reform measures that could impact its finances/economy, as well as pledged to honor all existing debt obligations). From a sector perspective, health care and industrials gained over a percent, while energy underperformed.

Foreign stocks were helped by the Greece news, notably the European periphery of Portugal and Italy, as would be expected. Japanese stocks also gained upon release of final Q4-2014 GDP figures that showed a growth rate of +2.2%.

Bonds lost ground again on the week as rates ticked up in the middle and longer end of the yield curve by up to 10 basis points. Credit, including high yield and floating rate, gained strongly on the week, while long government bonds were the biggest laggards. In foreign markets, European debt sold off presumably in accordance to the deal with Greece, which pushed sentiment towards risk assets, as did a PMI reading that showed activity in the Eurozone is picking up.

Real estate in the U.S. was generally negative by around a half-percent, with higher interest rates and mixed economic data. Japanese REITs bucked the trend by moving higher, along with other Japanese equities.

Despite early promise, commodities turned negative on the week on the order of a few percent, in keeping with energy prices. Natural gas prices rose several percentage points, with continued frigid temperatures, while crude oil was one of the worst performers—trading in the low $50's most of the week, before setting just above $50.

Have a good week.

Sources: FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citi, 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 February 16, 2015.

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