Weekly Market Highlights

Yield-Oriented Markets Remain Under Pressure amidst Rising Rate Backdrop

  • U.S. housing releases were mixed last week
  • U.S. core CPI surprised to the upside in April

Last Week’s Highlights

  • NAHB Housing Market Index:
    -2 to 54 in May.
  • U.S. Housing Starts: +20.2% to SAAR of 1.135 million units in April.
  • U.S. Building Permits: +10.1% to SAAR of 1.143 million units in April.
  • U.S. Existing Home Sales: -3.3% to SAAR of 5.04 million units in April.
  • U.S. Consumer Price Index: +0.1% in April month-over-month and -0.2% year-over-year (core CPI increased 0.3% month-over-month and 1.8% year-over-year).
  • Oil:  $59.72 ($0.03)
  • Gold:  $1,204.00 ($21.30)
  • U.S. 10-year Treasury:  2.22% (0.08%)
  • Dollar:  Euro--$1.10, Yen--121.04 (strengthened against Euro and Yen)
  • VIX:  12.13 (0.25)

What to Watch for

  • Tuesday 5/26:  U.S. Durable Goods Orders
  • Tuesday 5/26:  Case-Shiller Home Prices
  • Tuesday 5/26:  U.S. New Home Sales
  • Tuesday 5/26:  U.S. Consumer Confidence
  • Friday 5/29:  U.S. 1Q 2015 GDP (second estimate)

U.S. interest rates crept higher last week, placing renewed pressure on a wide range of yield-oriented securities such as investment grade fixed income markets and real estate investment trusts. Meanwhile, U.S. equities—both large and small caps as represented by the Russell 1000 and Russell 2000 indices—edged 0.2% and 0.7% higher, respectively. Although valuations for both market capitalization segments remain near cycle highs, we believe the continuity of the business cycle can continue to lend support to U.S. equities going forward.

Housing Green Shoots?

Last week’s U.S. economic data releases largely focused on the housing sector, which has not been immune from the weaker growth trajectory that was witnessed in the first quarter of the year. Overall, the NAHB Housing Market Index and existing home sales came in on the weaker side while housing starts and building permits surged +20% and +10%, respectively. Housing releases may be uneven in the near term, but we anticipate modest upside for the sector as it thaws from the negative winter impact. Longer-term, headwinds in the form of rising interest rates and reduced affordability may offset more favorable trends in employment, income and household formation.

U.S. Inflation Bounce

The Friday before a long weekend is typically a quiet one from both an economic and market perspective. In the case of last Friday, however, the latest U.S. consumer price index release gave investors and the Federal Reserve plenty to think about over the three-day weekend. U.S. CPI and core CPI increased 0.1% and 0.3% in April, respectively, representing some stabilization in consumer inflation. Considering the sharp rebound in energy prices over the past two months and the stronger-than-expected core inflation data point, the debate over the Fed’s most likely lift-off date received a little more kindling for the fire. That being said, the most recent FOMC minutes showed that many participants view a June rate hike as unlikely. As a result, September remains the base case scenario; more accommodative global monetary policy—even as the Fed nears its first rate hike—should contribute to a more benign investment backdrop for the time being.

Statistics on the Current State of the Market

Market IndexWTDMTDYTD
Equity      
S&P 500 Index 0.2% 2.1% 4.1%
Russell 1000 Index 0.2% 2.2% 4.5%
Russell 1000 Growth Index 0.3% 2.4% 6.9%
Russell 1000 Value Index 0.2% 1.9% 2.1%
Russell Midcap Index 0.4% 2.3% 5.3%
Russell 2000 Index 0.7% 2.7% 4.4%
DJ Industrial Average Index -0.1% 2.5% 3.3%
NASDAQ-100 Index 0.7% 2.6% 6.9%
MSCI EAFE Index -0.6% 1.5% 11.0%
MSCI Emerging Markets Index -0.5% -0.8% 9.3%
Alerian MLP Index -0.1% -0.9% -0.2%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index -0.7% -1.5% 0.2%
Barclays US Aggregate Index -0.5% -0.9% 0.4%
Barclays Municipal Bond Index -0.2% -0.7% -0.2%
BofA Merrill Lynch U.S. High Yield Index 0.0% 0.1% 3.9%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index -1.4% 0.6% -0.6%
FTSE EPRA/NAREIT Global Index -1.3% 0.0% 4.1%
Bloomberg Commodity Index -2.7% -1.2% -1.7%
Gold (NYM $/ozt) Continuous Future -1.7% 1.8% 1.7%
Crude Oil (NYM $/bbl) Continuous Future 0.0% 0.2% 12.1%

Data Source: FactSet and RIMES

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