The H Group Blog

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

Weekly Review - January 4, 2016

Weekly Review - January 4, 2016

Guest Post - Monday, January 04, 2016

Summary

  • Economic numbers for the last week of the year was mixed, with more poor manufacturing data (which has been in a back-and-forth trend all year), housing prices moving higher while pending home sales fell. Improvement in consumer confidence was a rare bright spot.
  • Equity markets ended on a lackluster note, both for the week and the full year, with falling energy prices playing a key role in the poor results. Bonds were flat with little changes in interest rates on the week, and on net for the year as well, despite some volatility in between. Commodities lost ground generally with oil prices falling on the week, capping off a year of substantial price declines for a variety of energy contracts.

Economic Notes

(-) The Chicago PMI report for December showed a decline of -5.8 points from the prior month, to 42.9. In fact, this was the largest one month contraction since 2009, and it's been very much a back-and-forth year for the index. For the month, all key segments came in below 50, with new orders and order backlogs falling off the most. However, a key positive takeaway from the report was that the vast majority of respondents expect the situation in 2016 to improve.

(+) The Case-Shiller home price index rose +0.8% for October, slightly surpassing the +0.6% gain expected. Every member of the 20-city sample rose in price, led by San Francisco and Seattle, which each gained +1.3% and have been bastions of strength, although some seasonal adjustments may have affected overall figures. Year-over-year, the index is up +5.5%, which remains strong, especially compared to low inflation levels.

(0) The November advance trade balance report showed some improvement, at a deficit level of -$60.5 bil., which was slightly less than expected. Goods exports fell by -2.0% on the month, while imports fell by -1.8%. While cheaper petroleum certainly played a role in the nominal dollar amounts, consumer goods also declined by -6%.

(-) Pending home sales in November fell by -0.9%, compared to an expected +0.7% gain. Prices fell in the West region by over -5% and by -3% in the Northeast, while the South and Midwest experienced gains in the +1% range or so. Year-over-year, the national pending home sales series rose +5.1%.

(+) The Conference Board consumer confidence survey showed improvement by about +4 points to 96.5 for December, better than the little-changed 93.5 expected. Households reported better prospects for both current economic conditions as well as expectations for the future. In addition, the labor differential describing the ease of finding jobs improved by several points to end just slightly negative.

(0) Initial jobless claims for the Dec. 26 ending week rose by almost +20k to 287k, higher than the 270k expected. Continuing claims for the Dec. 19 week also ticked upward to 2,198k, compared to the 2,190k expected. It appears some of the results may have been affected by seasonal adjustments related to the holiday, but overall levels remain at low levels.

Market Notes

Period ending 12/31/2015

1 Week (%)

YTD (%)

DJIA

-0.72

0.21

S&P 500

-0.80

1.38

Russell 2000

-1.57

-4.41

MSCI-EAFE

-0.27

-0.81

MSCI-EM

-1.23

-16.96

BarCap U.S. Aggregate

-0.03

0.55

U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.

12/31/2014

0.04

0.67

1.65

2.17

2.75

12/24/2015

0.20

1.03

1.73

2.25

2.96

12/31/2015

0.16

1.06

1.76

2.27

3.01

In a generally light final week for trading activity, U.S. stock markets ended the year on a down note, as weaker energy and materials returns overwhelmed less negative returns from utilities, consumer cyclical and health care stocks. For the full year, consumer stocks and health care served up healthy, near-average (5-10%) gains, while energy stocks lost over -20%, following the downward path of crude prices. Large-caps again outperformed small-caps for the week, as has been the case throughout 2015.

A market we don't mention much, due to its concentration and niche sector focus, the NASDAQ index, performed significantly better, gaining nearly +6% last year, as a small group of new economy stocks (including Facebook, Amazon, Netflix and Google—known as the FANG group) led with very strong double-digit returns, as well as by strength in biotech, which also gained over +10% for the year. This is an example of the equity market becoming more bifurcated in its results from sector to sector, which wouldn't be surprising to see continue in 2016.

Foreign stocks experienced mixed results, with developed markets including Japan, posting small gains (turned to losses after the impact of a stronger U.S. dollar), while emerging market results were generally weighed down by the commodity-export members, including Russia and South Africa.

U.S. interest rates were little changed on the week, resulting in a flattish week for domestic fixed income. High yield corporates experienced the biggest gains, up nearly a half-percent, trimming year-to-date losses, while floating rate bank loans also gained. A U.S. dollar gaining on the week served as a headwind for foreign bonds, which generally lost ground.

Real estate experienced a positive week with contributions from health care and apartments, while mortgage REITs and lodging lagged with losses. With gains in the near-5% range, real estate was one of the best-performing asset classes of 2015. This was due to continued strength in fundamentals, such as tenant demand and rental rates in several key urban areas, as well as a lack of oversupply that can cause real estate cycles to sputter.

A few weeks ago, we mentioned the rule changes that expanded the ability for foreign entities to expand ownership of domestic real estate assets (specifically, a larger percentage without incurring special excise taxes). While it didn't receive much headline attention at the time, several REIT managers we correspond with felt this was a significant market development—notably due to the possible expansion of capital coming into the market from overseas. So, an asset class that features attractive valuations could receive additional support from this type of influence alone.

Commodities were mixed during the last week of the year. Industrial metals and the agricultural group were flat to a bit higher, while energy and precious metals lost over a percent. West Texas crude, the most closely watched contract in the past year, after making some headway last week, lost ground to end the year just above $37/barrel. This compares to a price in the low $50's at the beginning of the year—an area which continues to be the midpoint of many analyst forecasts for the next several years, despite the timeframe for getting back there having lengthened a bit.

There are several sub-stories that have originated from the sharp declines in the oil patch, from credit concerns in several sectors of the U.S. high yield bond market, to earnings of energy equities (which have taken down headline earnings numbers for the entire S&P 500 for the year), as well as creating budget strains in several oil-exporting nations such as Russia and Saudi Arabia, which could have political ramifications if these conditions persist. As it stands, the power of OPEC as a price-setter through production quotas has been challenged with the emergence of the United States as oil swing producer. This is not to mention the natural gas markets, which have also shown high supply conditions and, if the last few weeks are any indication, a more tempered winter than seen over the past several years—although it's still early yet. No doubt more to come regarding oil as a key market variable in 2016.

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 December 28th, 2015.

Trackback Link
http://www.thehgroup.com/BlogRetrieve.aspx?BlogID=17607&PostID=1444112&A=Trackback
Trackbacks
Post has no trackbacks.

* Required





Subscribe to: The H Group SALEM Mailing List

Archive


Recent Posts