Weekly Market Highlights

Global equity markets rebound as oil continues bottoming process

  • U.S. headline CPI declined 0.3% in November, its largest drop since December 2008
  • The Russian ruble experienced tremendous volatility in spite of a hike in their key interest rate from 10% to 17%
  • The FOMC tweaked the language in its statement but largely left its monetary policy stance unchanged

Last Week’s Highlights

  • U.S. Housing Starts: 
    -1.6% to SAAR of 1.028 million units in November.
  • U.S. Building Permits: 
    -5.2% to SAAR of 1.035 million units in November.
  • FOMC Decision: 
    The Federal Reserve removed its “considerable time” guidance, but advocated a patient approach to normalizing the stance of monetary policy.
  • U.S. Consumer Price Index: 
    -0.3% in November month-over-month and +1.3% year-over-year (core CPI increased 0.1% month-over-month and 1.7% year-over-year).
  • Oil:  $57.13 ($0.68)
  • Gold:  $1,196.00 ($26.50)
  • U.S. 10-year Treasury:  2.18% (0.08%)
  • Dollar:  Euro--$1.22, Yen--119.51 (strengthened against Euro and Yen)
  • VIX:  16.49 (4.59)

What to Watch for

  • Monday 12/22: 
    U.S. Existing Home Sales
  • Tuesday 12/23: 
    U.S. Personal Income and Outlays
  • Tuesday 12/23: 
    U.S. Durable Goods Orders
  • Tuesday 12/23: 
    U.S. 3Q 2014 GDP (third estimate)
  • Tuesday 12/23: 
    U.S. New Home Sales

Oil prices bounced around last week, but ultimately finished lower once again. Equity markets also displayed a heightened level of volatility yet finished sharply higher on the back of ongoing global monetary policy support. On Wednesday, markets rallied ahead of and following the Federal Open Market Committee’s statement release, press conference and summary of economic projections. Global equity indices maintained the strong momentum on Thursday after the Swiss National Bank said it would enact negative deposit rates. We are certainly encouraged by the move higher; however it is still too early to give the all clear signal until oil forms a bottom.

FOMC Tackles Issues of the Day

The FOMC statement had something for everyone as the removal of the “considerable time” guidance gives the Fed flexibility to pursue rate hikes earlier (potentially as soon as June 2015) while the lower dot plots suggest a slower tightening of policy over time. Overall, the FOMC is confronted with a difficult situation with healthy U.S. payroll growth and headline inflation at a low level and likely decelerating (U.S. CPI declined the most in November since December 2008) due to falling oil prices. However, the Committee still views the effects of recent oil price declines as transitory and thus may place more emphasis on the employment side of their dual mandate. That being said, we believe the Fed will be cautious in their approach to normalizing policy, particularly with risks related to oil and Russia still elevated.

The FOMC also addressed key global developments including the substantial decline in oil prices and the difficult economic conditions in Russia. With respect to the former, we agree with Yellen’s assertion that the decline in oil prices is likely to be a net positive for the U.S. with household savings and increased spending power outweighing the negative impact from reduced drilling activity. Russia, on the other hand, is more of a wildcard as the ruble has experienced significant volatility and capital outflows in spite of an interest rate hike from 10% to 17%. Although the situation may not be as dire as it appears on the surface considering the ruble is a floating currency and Russia has meaningful foreign exchange reserves, we maintain a healthy dose of caution until oil prices stabilize and economic sanctions become clearer. In the meantime, our preference for domestically focused equities remains intact and we continue to see upside potential once we get past near term volatility.

Statistics on the Current State of the Market

S&P 500 Index 3.4% 0.3% 14.3%
Russell 1000 Index 3.4% 0.2% 13.7%
Russell 1000 Growth Index 3.1% -0.5% 13.6%
Russell 1000 Value Index 3.7% 0.9% 13.8%
Russell Midcap Index 3.4% 0.2% 13.2%
Russell 2000 Index 3.8% 2.0% 4.0%
DJ Industrial Average Index 3.0% 0.0% 9.9%
NASDAQ-100 Index 2.0% -1.3% 19.2%
MSCI EAFE Index 0.9% -3.1% -4.1%
MSCI Emerging Markets Index 0.7% -5.9% -3.2%
Alerian MLP Index 4.6% -6.9% 3.4%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index -0.6% 0.3% 10.6%
Barclays US Aggregate Index -0.3% -0.1% 5.8%
Barclays Municipal Bond Index -0.2% 0.3% 8.8%
BofA Merrill Lynch U.S. High Yield Index 1.1% -2.0% 1.9%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index 1.5% 1.4% 28.0%
FTSE EPRA/NAREIT Global Index 0.7% -0.9% 14.0%
Bloomberg Commodity Index -1.9% -3.8% -13.6%
Gold (NYM $/ozt) Continuous Future -2.2% 1.7% -0.5%
Crude Oil (NYM $/bbl) Continuous Future -1.2% -13.6% -42.0%

Data Source: FactSet and RIMES

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