Weekly Market Highlights

U.S. Leads Global Equity Markets in Strong Rebound Last Week

  • U.S. GDP and Euro area CPI headline this week’s global economic releases
  • The FOMC and Bank of Japan are scheduled to hold policy meetings this week

Last Week’s Highlights

  • U.S. Existing Home Sales: 
    +2.4% to SAAR of 5.17 million units in September.
  • U.S. Consumer Price Index: 
    +0.1% in September month-over-month and +1.7% year-over-year (core CPI increased 0.1% month-over-month and 1.7% year-over-year).
  • U.S. New Home Sales: 
    +0.2% to SAAR of 467,000 units in September.
  • Oil:  $81.01 ($1.05)
  • Gold:  $1,231.80 ($7.20)
  • U.S. 10-year Treasury: 
    2.27% (0.07%)
  • Dollar:  Euro--$1.27, Yen--108.15 (flat against Euro, strengthened against Yen)
  • VIX:  16.11 (5.88)

What to Watch for

  • Tuesday 10/28: 
    - U.S. Durable Goods Orders
    - Case-Shiller Home Prices
    - U.S. Consumer Confidence
  • Tuesday 10/28-10/29: 
    - FOMC Meeting and Policy Decision
  • Thursday 10/30: 
    - Bank of Japan Policy Meeting
    - U.S. 3Q 2014 GDP (first estimate)
  • Friday 10/31: 
    - Euro Area Consumer Price Index
    - U.S. Personal Income and Outlays

After several weeks of declines, global equity markets rebounded strongly last week and the VIX volatility index continued to recede, closing at 16.11 on Friday. Overall, U.S. equities led the way with large-caps, as represented by the S&P 500, posting a weekly gain of 4.1%. Through the midpoint of third quarter earnings season (from an index market capitalization standpoint), companies have reported decent results, providing some additional support and stability to the financial market backdrop. Thus far (207 S&P 500 companies), we have witnessed another typical earnings season with 72% and 50% of companies exceeding earnings and revenues estimates, respectively. Should the reporting season continue on this track, consensus earnings growth of 6% and revenue growth of 4% appears achievable.

Central Bank Policy Still in Support Mode

Global central bank policy has provided tremendous support to the economic and financial market backdrops in recent years and although a few major central banks like the Federal Reserve and Bank of England may have their eye on tightening policy in 2015, others such as the Bank of Japan and European Central Bank remain firmly in easing mode. This week, the Federal Open Market Committee and Bank of Japan will be meeting and providing an update on their current outlook. In the United States, we believe the Fed could delay the first fed funds rate hike well into 2H 2015 due to the low inflation, stronger dollar, global growth concerns and geopolitical risks that persist. The BOJ, under the leadership of Governor Haruhiko Kuroda and implicitly Prime Minister Shinzo Abe, is expected to continue expanding its balance sheet in line with its stated target for its monetary base of ¥70 trillion to ensure that higher growth and inflation outcomes become entrenched.

Lastly and potentially most importantly, ECB President Mario Draghi may be on the verge of dipping his toe in the quantitative easing water. After cutting the ECB’s interest rates to record lows, announcing purchases of asset-backed securities and with rumors of corporate bond purchases swirling, it may be only a matter of time before Draghi pursues a full scale QE program to turn the tide of inflation in Europe. Overall, we believe the path of global central bank policy will ultimately play a supportive role so long as global growth remains under pressure.

Search for Income Exacerbated

A common challenge for investors in this environment has been the search for income. Accommodative monetary policies, a slow and grinding level of growth and periodic flights to quality have kept a lid on global interest rates. In the U.S., the 10-year Treasury at 2.27% as of October 24 offers relative appeal to comparable rates in places like Japan (0.46%), Switzerland (0.48%) and Germany (0.86%). Thankfully, we are seeing attractive sources of yield, but it does require going further out on the risk curve—into non-investment grade debt, master limited partnerships and other equity securities. Based on our longer-term constructive view, each of these asset classes has the potential to provide a nice source of both income and appreciation.

Statistics on the Current State of the Market

S&P 500 Index 4.1% -0.3% 8.0%
Russell 1000 Index 4.2% -0.3% 7.7%
Russell 1000 Growth Index 4.4% -0.1% 7.7%
Russell 1000 Value Index 3.9% -0.4% 7.7%
Russell Midcap Index 4.4% 0.3% 7.2%
Russell 2000 Index 3.4% 1.6% -2.9%
DJ Industrial Average Index 2.6% -1.3% 3.3%
NASDAQ-100 Index 5.9% -0.2% 12.5%
MSCI EAFE Index 2.4% -3.6% -4.6%
MSCI Emerging Markets Index 0.8% -2.0% 0.7%
Alerian MLP Index 3.0% -3.5% 15.3%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index -0.6% 2.2% 9.3%
Barclays US Aggregate Index -0.3% 1.2% 5.3%
Barclays Municipal Bond Index -0.4% 0.8% 8.4%
BofA Merrill Lynch U.S. High Yield Index 0.9% 1.1% 4.7%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index 3.2% 7.0% 21.1%
FTSE EPRA/NAREIT Global Index 2.7% 3.2% 10.6%
Bloomberg Commodity Index -0.7% -1.8% -7.3%
Gold (NYM $/ozt) Continuous Future -1.0% 1.3% 0.5%
Crude Oil (NYM $/bbl) Continuous Future -2.1% -10.7% -15.1%

Data Source: FactSet and RIMES

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