Weekly Market Highlights

Global Equity Markets Finish Higher in Choppy Week of Trading

  • 158 S&P 500 companies, representing 34% of the index market capitalization, are scheduled to report their financial results this week

Last Week's Highlights

  • U.S. Retail Sales:  +0.2% in June.
  • U.S. Producer Price Index:  +0.4% in June month-over-month and +1.9% year-over-year (excluding food and energy, core PPI increased 0.1%).
  • U.S. Housing Starts:  -9.3% to SAAR of 893,000 units in June.
  • U.S. Building Permits:  -4.2% to SAAR of 963,000 units in June.
  • Oil:  $101.95 ($1.12)
  • Gold:  $1,309.40 ($28.00)
  • U.S. 10-year Treasury:  2.48% (0.04%)
  • Dollar:  Euro--$1.35, Yen--101.35 (strengthened against Euro, flat against Yen)
  • VIX:  12.06 (0.02)

What to Watch for

  • Tuesday 7/22:  U.S. Consumer Price Index
  • Tuesday 7/22:  U.S. Existing Home Sales
  • Thursday 7/24:  U.S. New Home Sales
  • Friday 7/25:  U.S.  Durable Goods Orders

Global equity markets experienced another choppy week of trading last week, but ultimately finished on a strong note on Friday and higher for the week—the S&P 500, MSCI EAFE and MSCI Emerging Markets indices posted gains of +0.6%, +0.3% and +0.7%, respectively.  Those gains, however, mask some of the volatility that crept into financial markets last week.  On Thursday, risk assets experienced losses in the wake of the Malaysia Airlines plane that was downed over Ukraine, which underscores the instability that persists in the region.  Although a thorough investigation will take place over the coming days and weeks, early evidence suggests Russian-backed separatists are responsible.  Going forward, Russia will have to decide whether it is willing to ease tensions and reduce its support and influence in Ukraine or face even tougher economic sanctions by the United States and potentially Europe.

Yellen Testimony

Federal Reserve Chair Janet Yellen testified before Congress last week and while there was very little new information provided, her remarks (oral and written) contributed to some financial market volatility. In particular, Yellen’s comments on equity markets garnered increased scrutiny—although she said valuations are generally in line with historical norms, the Fed also acknowledged pockets of increased risk-taking and specifically named social media and biotechnology as two industries where valuations appear stretched. We would not make too much out of these comments related to equity valuations and believe Yellen’s overall message remains the same. The Fed is taking a patient approach to its monetary policy stance and will continue to evaluate the economic data even as second quarter growth appears likely to rebound. As we have mentioned previously, Yellen is doing her best to buy more time before she has to communicate a change in policy.

Staying the Course

It has been a challenging few weeks for investors, particularly with geopolitical tensions escalating in the Middle East and Ukraine. That being said, equity markets have remained resilient and the S&P 500 closed on Friday just a few points shy of its all-time high. Second quarter earnings will provide a nice distraction this week with 158 S&P 500 companies, representing 34% of the index market capitalization, scheduled to report their financial results. It is still early in the reporting season (83 companies have reported), but results thus far continue to display strength with 66% and 60% exceeding consensus EPS and revenue forecasts, respectively. As a result, we maintain our constructive view on equity markets over a longer term investment horizon and will continue to focus on valuations and fundamentals, both of which we believe are trending in the right direction.

Data Source: FactSet and RIMES

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