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Weekly Review - May 18, 2015

Weekly Review - May 18, 2015

Guest Post - Monday, May 18, 2015


  • Economic data for the week was mixed, with weaker-than-expected retail sales numbers, decent employment metrics and conflicting sentiment data from consumers and small businesses.
  • Global equities gained on the week, with international stocks outperforming U.S. names—due to a weakening dollar effect—both despite a lack of major headline data to move sentiment in either direction. Global bond yields jumped mid-week but came back to earth, in both U.S. and foreign markets, which resulted in generally flat domestic returns and slightly better for foreign bonds, which benefitted from a weaker dollar. Commodities rose a bit, with oil price stability and some gains in gold.

Economic Notes

(0) Retail sales for April came in flat, which was weaker than the expected +0.2% increase. The headline figure included an almost -0.5% decline in auto sales during the month, which, when removed with other cyclical factors such as gasoline sales and building materials, pushed the core/control figure upward to a +0.6% gain. Within the core, non-store retail (online, mostly) gained almost a percent, as did health/personal care, while electronics and other merchandise declined by up to a percent—so a mixed bag overall.

(-) The Empire Manufacturing Index for May improved on April’s negative figure, coming in at a modest +3.1, but still disappointed relative to expectations of a rise to +5.0. The underlying components varied, as new orders and the average workweek length improved, but employment, shipments and plans for capital spending all fell—although all areas remained in positive expansionary territory.

(-) Industrial production for April fell -0.3%, compared to expectations of a flat month. While motor vehicle output rose a percent, utilities fell by an equivalent amount due to the usual springtime warming and manufacturing also declined along with mining and oil/gas production. Capacity utilization fell by -0.4% to 78.2%, which was just a tick below the expected figure. Despite a steady upward improvement from a 67% trough level in mid-2009, utilization figures have yet to surpass the 80%+ levels seen prior to the financial crisis. Moreover, since this series began in the late-1960’s, many prior business cycle peaks have reached the 85% level (last seen in 1997).

(+) Import prices fell -0.3% in April, which was the opposite of median expectations of a +0.3% gain. Prices for petroleum imports rose +1%, while, removing that impact, remaining prices fell by about a half-percent. Year-over-year import prices showed a decline of -11% (ex-fuels fell -2%) which obviously demonstrates the impact of oil’s extreme price moves as well as the U.S. dollar’s strength, which serves to correspondingly drop the prices of imported goods (one of this strong dollar condition’s few benefits).

(-) Business inventories for March rose +0.1%, which was below the expected +0.2% increase. The report was led by larger gains in retail inventories, which appeared to be auto-related as the ex-autos portion gained in line with the broader index.

(0) The Producer Price Index fell -0.4% in April, versus expectations of a +0.1% gain. However, removing food and energy, the core PPI fell a more modest -0.2%. Trade services also fell by nearly -1%, which kept the core measure contained—other areas were generally flat. Year-over-year, headline PPI fell -1.3% while core rose +0.8%, in keeping with recent very tempered trends on the inflation front.

(+) The NFIB small business optimism index came in a bit better than anticipated, rising from 95.2 in March to 96.9 in April, and beating consensus expectations of 96.0. Index components were optimistic for the most part, as earnings trends, cap-ex plans, as were hiring plans, but sales expectations fell.

(-) The preliminary Univ. of Michigan consumer sentiment survey for May came in below expectations, falling -7 points to 88.6, compared to an expected flat 95.9 reading. Feelings about both current conditions and expectations for the future fell by -7 points. Inflation expectations moved upward for the 1- and 5- to 10- year-ahead periods to 2.9% and 2.8%, respectively. This is a fickle report, and although this isn’t always mentioned in the release, the spot price for unleaded gasoline tends to play a major role in these consumer responses—this price being up +40% year-to-date, although still -30% lower on a year-over-year basis.

(+) The JOLTs job openings report for March, was strong relative to history but disappointed expectations, coming at 4,994k compared to consensus calls for 5,108k and a drop of –150k from February. The hiring rate was unchanged at 3.6%, while the quit rate rose a tenth to 2.0% (a positive).

(+) Initial jobless claims for the May 9 ending week came in at 264k, which is -9k below the expected figure. Continuing claims for the May 2 week came in below expected at 2,229k, which was -3k below consensus and still very close to a recovery low. No special factors affected results, per the Department of Labor. Although not talked about much due to their high frequency, both claim series are at very low/strong levels.

Market Notes

Period ending 5/15/2015

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 ended up higher on the week, with defensive consumer staples and health care leading the way, while cyclical materials and energy lagged, by losing over a percent each. Small-caps outperformed large-caps slightly, bringing the year-to-date returns to nearly a draw between the two segments.

Foreign stocks outgained U.S. equities, although almost the entire effect was from a 1.5% weakening of the dollar—local returns were, for the most part, flat on the week. Peripheral Europe led the pack, with the exception of Greece, which continues to be weighed down by debt concerns, although they’ve been making their payments with available cash as they continue to negotiate with the ECB and IMF for further loosening of their debt burden. The Bank of England held their benchmark interest rate at 0.5%, while keeping quantitative easing in place. More newsworthy, though, is that the Euzozone expanded by +0.4% in the first quarter, which is the fastest pace in two years. Even more interestingly, the four largest Euro nations (Germany, France, Italy and Spain) all reported positive growth, which is the first time in half a decade that’s happened all at once. QE was hoping to accomplish such growth, generate some inflation (which has now moved from negative to zero) and equities have performed in line with these partially-realized expectations this year.

U.S. bonds experienced rate volatility during the week, with yields on the 10-Year Treasury moving up to 2.3% again, before resetting back at the 2.15% level by Friday—close to where they started. Consequently, total returns were relatively tempered, with most intermediate governments and corporates coming in flat. Long treasuries suffered a bit more with the volatile rate action, losing just over a half-percent on the week.

The weaker dollar aided foreign bonds, since the more tempered returns in fixed income are more easily pushed around by currency changes. European bonds especially have been in the news perhaps more than any other asset class as of late, with yields in developed Europe violently moving higher from negative or near flat levels (related to the reasons listed under equities just above). However, yields fell back to where they started after peaking mid-week, which helped stabilize foreign bond returns somewhat.

Real estate generally performed in line with equities, with Europe performing several times better than the U.S. Year-to-date, foreign REITs have bucked the trend of the past year by coming back to life and outperforming U.S. REITs, with help from a weakening dollar as of late, improving conditions in Europe (albeit not outstanding yet) and hopes for more stimulus to keep Asia from falling into a deeper chasm.

Commodities gained about a percent, as measured by the GSCI, as oil bounced into the low $60’s and back into just under $60 by the week’s end. Silver and gold were the big winners on the week, gaining over +3% as the U.S. dollar continued to weaken, agriculture came back slightly (with wheat bouncing back by over +5%, reversing a recent trend) while industrial metals lost about a percent on average.

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 May 11, 2015.

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