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Weekly Review - January 5, 2015

Weekly Review - January 5, 2015

Guest Post - Monday, January 05, 2015

Summary

  • The most closely-watched economic releases were the ISM Manufacturing survey and Chicago PMI, which fell from last month and under expectations. Housing/construction data was mixed, while consumer confidence was a bit better.
  • Ending the year, both U.S. and developed foreign equities fell, while emerging market stocks and real estate gained. Investment-grade bonds generally gained, while crude oil led commodities down for yet another week.

Economic Notes

(-) The ISM Manufacturing index came in a bit below expectations, falling from 58.7 in November to 55.5 for December (expectations called for a 57.5 reading). New orders and production both fell by several points, exacerbating the decline, while the employment metric improved a bit. Export orders also declined by a few points, and prices paid fell dramatically (likely due to an oil price effect). The anecdotal summary included comments about the drop in oil prices as well as some delivery issues at West Coast ports.

(-) The Chicago PMI for December fell -2.5 points to a still-robust 58.3. Production was the primary negative culprit, although it remained in very strong over-60 territory, while new orders also declined and remained just under 60. Like the ISM manufacturing survey, employment was the sole positive contributor for the month.

(+) The Case-Shiller home price index improved more than expected for October, rising +0.8% versus a forecasted +0.4%. All 20 cities in the mainstream index gained (when looked at on a seasonally-adjusted basis), led by almost-2% gains in Atlanta, San Francisco and Tampa. This brought the year-over-year figure to +4.5%.

(+) Pending home sales for November came in a bit better than expected, rising +0.8% compared to a forecasted +0.5%. The Northeast and Southern segments rose about a percent and a half, the West a bit weaker, while the Midwest declined about a half-percent on the month.

(-) Construction spending for November fell by -0.3%, which was the opposite direction of the expected +0.4% increase. Residential construction gained almost a percent, while non-residential fall an equal amount as office/commercial/healthcare on the private side all fell back.

(0/-) The Conference Board's consumer confidence survey for December came in at 92.6, which was an increase from November's 91.0, but lagged the forecasted 93.9 result. Assessments of current conditions improved by several points, while forward-looking expectations fell just a bit. The jobs being plentiful-to-hard to get ratio also improved by almost two points.

(-) Initial jobless claims for the Dec. 27 ending week rose a bit to 298k, up +17k from the prior week and +8k higher than forecast. Continuing claims for the Dec. 20 week, by contrast, came in -15k lower than expected to 2,353k, and -53k lower than the prior week. The Dept. of Labor made no mention of any special factors, but the holiday season can sometimes create more week-to-week volatility due to seasonal employment and other year-end adjustments.


Read the "Question for the Week" for January 5, 2015:

How did last year stack up? (2014 Investment Review)


Market Notes

Period ending 1/2/2015

1 Week (%)

2014 (%)

DJIA

-1.20

10.04

S&P 500

-1.42

13.69

Russell 2000

-1.30

4.89

MSCI-EAFE

-1.52

-4.901

MSCI-EM

0.12

-4.63

BarCap U.S. Aggregate

0.60

5.97

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

12/26/2014 (Week Ago)

0.01

0.73

1.75

2.25

2.81

12/31/2014 (Year-End)

0.04

0.67

1.65

2.17

2.75

1/2/2015

0.02

0.66

1.61

2.12

2.69

U.S. stocks ended the week generally lower, with health care and energy suffering the least and tech and utilities down over 2% each.

Foreign stocks were largely down in line with U.S. names, although emerging markets ended up slightly positive. India and China led the way, the former on hopes for continued reform. China posted its first contraction of factory activity in seven months, while stocks there gained as the government loosened restrictions on domestic banks in holding foreign currencies. Greece suffered a loss for the week as the third round of elections ended in the government being dissolved until late January elections. Russia suffered another terrible week in line with losses in crude oil and reports that GDP contracted -0.5% in November and -0.2% from a year ago.

U.S. bonds gained during the risk-off week on lower rates, mostly in the long-term area. Treasuries outperformed while short debt, floating rate and high yield lagged by comparison. Developed foreign bond indexes experienced a strong week on lower rates, notably in Europe with the 10-year German Bund falling to a new low of 0.54%, but evened out to near zero when translated back to U.S. dollars. Emerging market bonds lost ground in local terms, while USD-denominated EM debt was generally unchanged.

Real estate was up a fraction of a percent, while Asian REITs saw sharp gains and Europe/UK names lost several percentage points on the week. In the U.S., healthcare, retail and malls were the leaders, while lodging pared back somewhat.

Commodities continued to lose ground, with major indexes down several percent and a stronger U.S. dollar by about a percent or so. West Texas crude dropped from just over $55 down to $52.80, along with declines from natural gas (which contains more of a weather-related component) and weakness in grain prices.

Have a good week and Happy New Year.

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 29, 2014.

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