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Weekly Review - January 25. 2016

Weekly Review - January 25. 2016

Guest Post - Monday, January 25, 2016


  • Last week's economic data was mixed, with manufacturing not as bad as expected, continued low inflation driven by commodity price declines over the past year, and mixed housing results to end the year.
  • A terrible start to the week in equity markets was turned around a bit by Friday, resulting in global stocks ending up positively for the week. Bond provided slightly negative returns as interest rates ticked back upward. After an early drop below $30/barrel, oil prices moved sharply higher over that level toward week's end.

Economic Notes

(0) The Philly Fed manufacturing survey rose to -3.5 for January, which was a large improvement from the prior month by about +7 points and stronger than the forecasted reading of -5.9 (anything below zero indicates a contraction from the prior month). New orders and shipments both improved, while employment and inventories edged down (the latter being a much more significant decline as inventory adjustments continue to be taking place).

(0) The consumer price index fell by -0.1% for December on a headline level and rose +0.1% on a core level—the key difference being that prices for energy commodities fell by -4% on the month. Median forecasts ranged from flat to little change, so this was in keeping with expectations. Overall, it appears several segments reported a deceleration in prices compared to previous months, including both medical supplies and services. Year-over-year, headline and core CPI rose by +0.7% and +2.1%, respectively, with energy commodities leading the way lower (at -20% declines in price), while the core areas of shelter, transportation services, health care and a few others moved higher at a more typical pace of 2.5-3.5% for 2015.

Since, due to calculation differences, the Fed's preferred PCE inflation measure tends to run a quarter of a percent or more under CPI, inflation conditions continue to run well under target. This marks the 4th year in a row that CPI has come in under 2%—the last 3% showing was in 2011. Aside from the obvious oil price declines that have affected the year-over-year measure, lower materials costs (like plastic) as well as transportation costs can be pushed lower with oil prices dropping.

(+) Existing home sales in December jumped higher by +14.7% to an annualized 5.46 mil., outperforming forecasts calling for a +9.2% gain. It looked as if this was a bounceback month from a disappointing November which was largely due to some changes in mortgage disclosure rules that delayed closings that month, pushing these out a bit. Single-family rose +16%, while multi-family gained +5%, which makes sense considering the possible cause. Inventories also appear to be fairly tight, which may act to push up home prices in certain areas. Year-over-year, home sales rose +7.7% in 2015, which fell within the average range for much of this decade.

(-) Housing starts for December fell by -2.5% to 1,149k, which ran counter to expectations of a +2.3% increase (consensus might have been driven by more optimistic results due to warmer Dec. weather). Multi-family starts fell by -1%, while single-family dropped by -3%. Building permits also fell, by -3.9%, although by less than the expected -6.4%. Multi-family permits fell by -11% while single-family gained by +2%, in keeping with normal volatility patterns. For the full year, single-family permits have risen to 740k, which is the highest level in eight years. The boom in multi-family continues, gaining +25% over the year to 493k starts—the apartment segment has been the faster grower of the two by far during past several years.

(-) The NAHB homebuilder index fell a point in January to 60, which was below the expectation of no change. The index also remains above the level of a year ago, but is off of the recovery high from last fall. Current sales improved a bit on the month, while future sales expectations and prospective buyer traffic both declined by a few points. Regionally, the Midwest fared positively, but weakened a bit everywhere else.

(-) The Conference Board's index of leading economic indicators fell by -0.2% in December, after two straight months of half-percent increases. Areas of strength (such as interest rate spread, credit and manufacturer new orders) have been fairly balanced with segments of weakness (including ISM new orders, building permits and jobless claims). By contrast, the coincident indicator rose +0.1% and lagging indicator gained +0.2%. For 2015, the leading indicator moved at a +2% annualized rate higher during the first half of the year, before decelerating down to a +1.3% speed in the second half. Overall, the trend is still solidly upward from the trough in 2009.

(0) Initial jobless claims for the Jan. 16 ending week rose to 293k, +15k higher than the median forecasted claims level. Continuing claims for the Jan. 9 week, on the other hand, fell by -55k to 2,208k, which was better than the expected 2,247k. Claims have ticked higher in recent weeks, but some of this effect could well be due to holiday employment-based adjustments.

Market Notes

Period ending 1/15/2015

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.



















Stocks began the week sharply lower after the MLK day holiday, due to concerns about the Far East, continued weakness in oil prices and a few higher-profile earnings misses. Chinese GDP came in for Q4 at 6.8%, which was a bit below expectations and under the 7% level of growth from recent years. Interestingly, services grew at a faster rate of 8+%, and now takes up over half of the economy, versus manufacturing, which is moving at a slower pace and shrinking in terms of overall proportion.

Later in the week, equities rebounded thanks to European Central Bank president Mario Draghi's public comments about the possibility of more stimulus measures in the region (despite no action last week on the rate front in Europe). Chinese markets also rebounded as the weaker GDP report raised the likelihood of further stimulus from Beijing. Unsurprisingly, with oil rebounding, commodity-sensitive nations such as Russia, Canada and Norway led with returns near or over +5% on the week, while Japan and troubled Brazil lagged.

U.S. bonds fell in price slightly as interest rates ticked back upward across the yield curve. Shorter-duration bonds were the better performers, while longer maturities lost ground. High yield bonds in the U.S. recovered somewhat along with stronger oil prices. Foreign bonds were generally affected by a rise in the value of the dollar by about two-thirds of a percent on the week, causing local returns for a variety of sovereigns (especially in emerging markets) to show decent gains, while USD-denominated safe haven countries lagged.

REITs were among the better-performing segments, as strong underlying demand fundamentals continue to underpin returns. U.S. real estate returns outpaced the broader equity markets on the week; commodity-sensitive Canada and Australia led the global group with strongly positive returns, while Japan lagged with negative results.

Commodities were the best-performing asset class for the short week, experiencing positive returns as oil prices recovered during the last two trading days, resulting in a net +6% gain, although other sub-sectors such as metals and agriculture gained as well. Energy has continued to experience a high degree of volatility, as the U.S. Dept. of Energy reported an increase in inventory last week that far exceeded expectations. Oil prices have been embattled around the $30 mark, above or below by a dollar or two, with high day-to-day moves as traders search for that magical clearing price. With prices falling this far and a lot of bad news ‘baked in', so to speak, a few strategists are of the mindset that we might be much closer than we think to some bottoming.

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 January 11, 2016.

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