Weekly Market Highlights

FOMC Data Dependent Until the End

  • The FOMC was relatively upbeat in its assessment of U.S. economic activity, but gave no clear indication on the timing of its first rate hike
  • Global purchasing manager indices (PMIs) and the U.S. employment report headline this week’s economic releases
  • Second quarter U.S. earnings season will wrap up over the next three weeks

Last Week’s Highlights

  • U.S. Durable Goods Orders: +3.4% in June (excluding transportation, durable goods orders increased 0.8%).
  • Case-Shiller Home Prices: May home prices increased 1.1% month-over-month and increased 4.9% year-over-year (NSA); -0.2% month-over-month (SA).
  • U.S. Consumer Confidence: -8.9 to 90.9 in July.
  • U.S. 2Q 2015 GDP (first estimate): +2.3% annualized rate.
  • Oil:  $47.12 ($1.02)
  • Gold:  $1,095.10 ($9.60)
  • U.S. 10-year Treasury:  2.20% (0.07%)
  • Dollar:  Euro--$1.10, Yen--123.93 (flat against Euro and Yen)
  • VIX:  12.12 (1.62)

What to Watch for

  • Monday 8/3:  U.S. Personal Income and Outlays
  • Monday 8/3:  ISM Manufacturing Index
  • Wednesday 8/5:  ISM Non-Manufacturing Index
  • Friday 8/7:  U.S. Employment Report

The Federal Open Market Committee convened on Tuesday and Wednesday last week and while they were collectively upbeat on the direction of the economy, they offered no clear guidance as to the timing of their first rate hike. Although frustrating for investors looking for clarity on U.S. monetary policy, this should come as no surprise as the Federal Reserve has reiterated on numerous occasions that they will be data dependent. As such, they will be monitoring several economic releases before they meet again in September—the most recent Employment Cost Index (ECI) was weaker than anticipated with a sequential quarterly gain of just +0.2% in the second quarter. The FOMC will also see two more employment reports, the first of which will be released on Friday for July. Lastly, international developments remain front-of-mind; while the risk associated with Greece has quieted down, China’s economy is in a downward growth trajectory and its equity markets continue to experience heightened volatility.

China’s Wild Ride

As we have written previously, it is important to differentiate between Chinese equities that are listed on domestic exchanges in Shanghai/Shenzhen (A-shares) and those listed in Hong Kong (H-shares). The domestic A-share market experienced significant volatility last week—roughly 20% of companies are still halted from a trading perspective, but that did not stop the Shanghai Composite from registering wild intraday swings and declines of -8.5% on Monday and -10% for the week. The pullback in Chinese equities could present an attractive entry point for long term investors, but the role and impact of policymakers in China’s financial markets is still an unknown. As a result, we anticipate ongoing volatility and thus maintain a near term cautious stance on China and the broader emerging markets equities complex.

Waiting for the Other Shoe to Drop

Despite the negative headlines emanating from China, developed market equities grinded higher last week as the S&P 500 and MSCI EAFE indices posted gains of +1.2% and +1.0%, respectively. That being said, investors are clearly on edge and bracing for a more negative economic and market environment. Ultimately, we believe the business cycle and earnings have the potential to support risk assets (equities and non-investment grade debt) in the quarters to come. In the meantime, increased volatility is likely until investors gain greater clarity and confidence on both of those fronts. Although we remain constructive on risk assets overall, we believe the tenuous state of global growth and investor sentiment warrant the consideration of nontraditional asset classes such as lower volatility hedge funds, which have the potential to mitigate portfolio volatility and contribute a less correlated source of return.

Statistics on the Current State of the Market

Market IndexWTDMTDYTD
Equity      
S&P 500 Index 1.2% 2.1% 3.4%
Russell 1000 Index 1.2% 1.9% 3.7%
Russell 1000 Growth Index 1.3% 3.4% 7.5%
Russell 1000 Value Index 1.2% 0.4% -0.2%
Russell Midcap Index 1.4% 0.7% 3.1%
Russell 2000 Index 1.1% -1.2% 3.5%
DJ Industrial Average Index 0.7% 0.5% 0.6%
NASDAQ-100 Index 0.7% 4.4% 8.3%
MSCI EAFE Index 1.0% 2.1% 8.1%
MSCI Emerging Markets Index -0.9% -6.9% -4.0%
Alerian MLP Index 3.3% -3.2% -13.9%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index 0.6% 1.3% 0.8%
Barclays US Aggregate Index 0.3% 0.7% 0.6%
Barclays Municipal Bond Index 0.1% 0.7% 0.8%
BofA Merrill Lynch U.S. High Yield Index 0.4% -0.6% 1.9%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index 1.2% 5.2% -1.2%
FTSE EPRA/NAREIT Global Index 0.6% 2.4% 0.5%
Bloomberg Commodity Index -1.6% -10.6% -12.0%
Gold (NYM $/ozt) Continuous Future 0.9% -6.5% -7.5%
Crude Oil (NYM $/bbl) Continuous Future -2.1% -20.8% -11.5%

Data Source: FactSet

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