Weekly Market Highlights

A Tale of Two Markets

  • U.S. 2Q 2015 GDP was revised higher to +3.7%
  • Global purchasing manager indices (PMIs) headline this week’s economic releases
  • The last U.S. employment report before the September FOMC meeting will be published on Friday

Last Week’s Highlights

  • Case-Shiller Home Prices:  June home prices increased 1.0% month-over-month and increased 5.0% year-over-year (NSA); -0.1% month-over-month (SA).
  • U.S. Consumer Confidence:  +10.5 to 101.5 in August.
  • U.S. New Home Sales:  +5.4% to SAAR of 507,000 units in July.
  • U.S. Durable Goods Orders:  +2.0% in July (excluding transportation, durable goods orders increased 0.6%).
  • U.S. 2Q 2015 GDP (second estimate):  +3.7% annualized rate (revised higher from previous +2.3% estimate).
  • U.S. Personal Income and Outlays:  Personal spending increased 0.3%, incomes increased 0.4%, and the savings rate increased to 4.9% in July.
  • Oil:  $45.22 ($4.77)
  • Gold:  $1,134.00 ($25.60)
  • U.S. 10-year Treasury:  2.19% (0.14%)
  • Dollar:  Euro--$1.12, Yen--121.38 (strengthened against Euro, weakened against Yen)
  • VIX:  26.05 (1.98)

What to Watch for

  • Tuesday 9/1:  ISM Manufacturing Index
  • Thursday 9/3:  European Central Bank Policy Meeting
  • Thursday 9/3:  ISM Non-Manufacturing Index
  • Friday 9/4:  U.S. Employment Report

Last week’s market activity could very well be characterized as being the best and worst of times. U.S. equities sold off sharply on Monday and Tuesday and the S&P 500 registered its first 10% correction since 2011 but bounced back on Wednesday and Thursday with the Dow Jones Industrial Average rallying the most in a two-day period since the financial crisis. For the week, the S&P 500, DJIA and Russell 2000 indices posted gains of 0.9%, 1.2% and 0.6%, respectively; non-U.S. equities were more mixed with the MSCI EAFE and MSCI Emerging Markets indices returning -0.5% and +1.0%, respectively. Aside from the positive performance across most global equity markets, we also witnessed a recovery in commodity prices (specifically oil: +11.8%) and master limited partnerships (+5.1%). That being said, we are by no means out of the woods with respect to the heightened level of market volatility and China in particular may continue to encounter economic headwinds in spite of their most recent policy response.

PBOC in Survival Mode

Last week, the People’s Bank of China further loosed their monetary policy by reducing its one-year benchmark lending/deposit rates 25 bps and cutting its reserve requirement ratio (RRR) 50 bps. These latest moves may do little to quell the economic growth concerns and significant volatility that China’s equity markets have experienced in recent months. At the same time, however, the PBOC has shown a willingness to respond and in comparison to many of its central bank counterparts, has ample room to pursue additional rate cuts. Should economic growth disappoint to a larger degree, Chinese policymakers also have plenty of options on the fiscal front to help turn the tide. Overall, we maintain our cautious near term stance on China given the potential for further downside risk. Longer-term, positive demographics in Asia and efforts to rebalance the economic drivers in China should lead to more sustainable growth. Furthermore, valuations (MSCI China trades at around 9x) are more reasonable today and arguably cheap compared to most developed markets.

Where We Stand

While we continue to evaluate risks in today’s environment, we believe the longer term trajectory for risk assets is still to the upside so long as recession is avoided. Recent data, at least in the United States, appears to be painting a more upbeat picture—U.S. 2Q 2015 GDP was revised higher to +3.7%, consumer confidence rebounded nicely and durable goods orders bested expectations last week. It will be equally important to see improvement in the macroeconomic data on a global scale—on that front, this week’s release of the purchasing manager indices (PMIs) will be closely monitored. With only a couple weeks to go until the next Federal Open Market Committee meeting (September 16-17), investors will also be acutely focused on Friday’s U.S. employment report. All told, we anticipate another active week; we still advocate a long term approach and are cautiously optimistic on risk assets within that time horizon. In the meantime, we hope to see some stabilization across markets but see ongoing volatility/pullbacks as opportunities to position portfolios for a potential recovery down the road.

Statistics on the Current State of the Market

Market IndexWTDMTDYTD
Equity      
S&P 500 Index 0.9% -5.2% -2.1%
Russell 1000 Index 0.9% -5.2% -1.8%
Russell 1000 Growth Index 1.6% -5.0% 2.1%
Russell 1000 Value Index 0.3% -5.5% -5.7%
Russell Midcap Index 0.6% -4.5% -1.6%
Russell 2000 Index 0.6% -6.0% -2.7%
DJ Industrial Average Index 1.2% -5.5% -5.0%
NASDAQ-100 Index 3.1% -5.7% 2.2%
MSCI EAFE Index -0.5% -6.8% 0.8%
MSCI Emerging Markets Index 1.0% -8.8% -12.5%
Alerian MLP Index 5.1% -4.5% -17.8%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index -1.1% 0.2% 1.0%
Barclays US Aggregate Index -0.6% -0.1% 0.5%
Barclays Municipal Bond Index -0.2% 0.2% 1.0%
BofA Merrill Lynch U.S. High Yield Index 0.3% -1.9% -0.1%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index -3.0% -4.1% -5.2%
FTSE EPRA/NAREIT Global Index -2.7% -5.0% -4.6%
Bloomberg Commodity Index 1.8% -2.6% -14.3%
Gold (NYM $/ozt) Continuous Future -2.2% 3.6% -4.2%
Crude Oil (NYM $/bbl) Continuous Future 11.8% -4.0% -15.1%

Data Source: FactSet

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