Weekly Market Highlights

Choppy Environment for Global Equities Continues as Greece, China Make Headlines

  • ECB President Mario Draghi reinforced the central bank’s commitment to QE last week
  • The People’s Bank of China cut its reserve requirement ratio 100 bps on Sunday
  • Largest week of the 1Q earnings season on tap

Last Week’s Highlights

  • U.S. Retail Sales: +0.9% in March.
  • U.S. Producer Price Index: +0.2% in March month-over-month and -0.8% year-over-year (excluding food and energy, core PPI increased 0.2%).
  • European Central Bank Policy Decision: ECB President Mario Draghi reinforced that the Governing Council is committed to its quantitative easing program until September 2016 and inflation is consistent with its target of roughly 2% over the medium term.
  • NAHB Housing Market Index:
    +4 to 56 in April.
  • U.S. Housing Starts: +2.0% to SAAR of 926,000 units in March.
  • U.S. Building Permits: -5.7% to SAAR of 1.039 million units in March.
  • U.S. Consumer Price Index:
    +0.2% in March month-over-month and -0.1% year-over-year (core CPI increased 0.2% month-over-month and 1.8% year-over-year).
  • Oil:  $55.74 ($4.10)
  • Gold:  $1,203.10 ($1.50)
  • U.S. 10-year Treasury:  1.86% (0.10%)
  • Dollar:  Euro--$1.08, Yen--118.98 (weakened against Euro and Yen)
  • VIX:  13.89 (1.31)

What to Watch for

  • Wednesday 4/22:  U.S. Existing Home Sales
  • Thursday 4/23:  U.S. New Home Sales
  • Friday 4/24:  U.S. Durable Goods Orders

Global equity markets experienced ongoing volatility last week as Greece and China provided fresh sources of concerns for investors. Emerging markets equities, represented by the MSCI Emerging Markets index, finished in positive territory for the week and now leads the S&P 500 and the MSCI EAFE year to date with a return of +9.5%. Meanwhile, oil prices have rebounded strongly as a result of ongoing rig count declines and slightly more favorable supply/demand fundamentals. Lastly, first quarter earnings season is beginning to take center stage; although still early, earnings expectations have fared better than whisper fears while revenue results have been slightly weaker than anticipated. This week, 158 S&P 500 companies, representing 34% of the index market capitalization, are scheduled to report their financial results, which will give investors another good opportunity to evaluate the impact of a strong dollar, lower oil prices and slower global growth on earnings.

Draghi Reinforces Message

In Europe, European Central Bank President Mario Draghi reinforced that the quantitative easing program that began last month is intended to run until the end of September 2016 and until inflation is sustained at close to 2% over the medium term. This should allay some of the skepticism around the ECB’s ability to purchase €60 billion of bonds every month. That being said, Greece remains an outstanding concern, which contributed to heightened volatility on Friday. Greece has been largely out of mind since the new government was granted an extension to their old bailout program in February. However, May 12 is being circled on calendars, at which time a large payment to the International Monetary Fund is due. Although technical details need to be worked out in the interim, we believe negotiations are following a typical course and that a positive resolution is still attainable.

China Dusts Off Old Playbook

China was also a source of headlines—first on Friday with rules limiting trading on margin as well as some liberalization of short selling. On Sunday, the People’s Bank of China announced a 100 bps cut to the reserve requirement ratio (RRR), freeing up additional capital for banks to lend. China’s equity market is one of the strongest year to date and over the last twelve months, but their economy is also slowing (the official GDP target is roughly 7% for 2015). Overall, China’s leadership is firmly committed to keeping the economy on track; as a result, we expect additional monetary easing in the form of rate cuts and potentially even direct fiscal stimulus. This may result in volatility in the near term, however we anticipate continued upside for Chinese equities over a longer time horizon.

Statistics on the Current State of the Market

S&P 500 Index -1.0% 0.7% 1.7%
Russell 1000 Index -1.0% 0.6% 2.2%
Russell 1000 Growth Index -1.3% 0.4% 4.2%
Russell 1000 Value Index -0.6% 0.9% 0.2%
Russell Midcap Index -1.1% 0.2% 4.1%
Russell 2000 Index -1.0% 0.0% 4.3%
DJ Industrial Average Index -1.3% 0.3% 0.7%
NASDAQ-100 Index -1.6% 0.4% 2.7%
MSCI EAFE Index -0.2% 2.7% 7.8%
MSCI Emerging Markets Index 0.8% 7.1% 9.5%
Alerian MLP Index 1.1% 3.3% -2.1%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index 0.9% 0.8% 3.4%
Barclays US Aggregate Index 0.4% 0.5% 2.1%
Barclays Municipal Bond Index 0.1% 0.1% 1.1%
BofA Merrill Lynch U.S. High Yield Index 0.2% 1.1% 3.6%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index -0.7% -2.7% 1.6%
FTSE EPRA/NAREIT Global Index -0.4% 0.7% 4.7%
Bloomberg Commodity Index 2.4% 3.8% -2.4%
Gold (NYM $/ozt) Continuous Future -0.1% 1.7% 1.6%
Crude Oil (NYM $/bbl) Continuous Future 7.9% 17.1% 4.6%

Data Source: FactSet and RIMES

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