Weekly Market Highlights

Global Equity Markets Grind Higher as Oil Continues to Slide Lower

  • WTI and Brent crude oil declined 3.6% and 4.8%, respectively, last week
  • Euro area 3Q GDP posted a very modest expansion
  • U.S. inflation and housing data headline this week’s domestic economic releases

Last Week’s Highlights

  • Euro Area 3Q 2014 GDP:  +0.2% quarter-over-quarter.
  • U.S. Retail Sales:  +0.3% in October.
  • Oil:  $75.82 ($2.83)
  • Gold:  $1,185.60 ($15.80)
  • U.S. 10-year Treasury:  2.32% (0.01%)
  • Dollar:  Euro--$1.25, Yen--116.29 (weakened against Euro, strengthened against Yen)
  • VIX:  13.31 (0.19)

What to Watch for

  • Tuesday 11/18:  U.S. Producer Price Index
  • Wednesday 11/19:  U.S. Housing Starts and Building Permits
  • Wednesday 11/19:  FOMC Minutes
  • Thursday 11/20:  U.S. Consumer Price Index
  • Thursday 11/20:  U.S. Existing Home Sales

It was a quieter week for financial markets, particularly here in the United States. The S&P 500 eked out a gain of +0.4% and traded in a tight 16 point range (between 2,030 and 2,046) last week. Outside of the United States, the MSCI EAFE and MSCI Emerging Markets indices posted modest gains. In comparison, Japanese equities, as represented by the Nikkei 225, continued their meteoric ascent higher—the index posted a gain of +3.6% last week and has increased over 20% since October 17. While Japanese equities have reacted favorably to the Bank of Japan’s latest easing announcement, the yen has also weakened against the U.S. dollar by over 9% in the last month.

Crude Awakening

For financial markets, the proverbial fly in the ointment has been the continued decline in oil prices. Year to date as of November 14, WTI and Brent crude oil have declined 23% and 29%, respectively. Oil markets have been under increased pressure in recent months as global growth has disappointed and global demand estimates have been revised lower. Last month, the International Energy Agency revised its 2014 global incremental oil demand growth forecast lower to +700,000 barrels per day from its previous estimate of +900,000 barrels per day. Overall, we expect oil prices to stabilize around their current levels but remain relatively range bound in 2015, particularly if OPEC decides to cut supply and/or U.S. production growth decelerates.

Oil Implications

To be sure, declining oil prices have dragged on the energy sector, which has been the weakest performing sector within the S&P 500 year to date as of November 14. Although oil price dynamics may continue to be a headwind in the near term for energy-related companies, many other areas of the equity market and broader economy stand to benefit from low oil prices and reduced fuel costs. As we head into winter and the holiday shopping season, consumers in particular may see some relief from savings at the pump (gasoline prices have dropped significantly since June) and on home heating costs. With several other U.S. economic metrics perking up, we believe lower oil prices can provide another support to domestic growth into year end.

Statistics on the Current State of the Market

Market IndexWTDMTDYTD
Equity      
S&P 500 Index 0.4% 1.2% 12.3%
Russell 1000 Index 0.4% 1.2% 11.9%
Russell 1000 Growth Index 0.8% 1.2% 12.1%
Russell 1000 Value Index 0.1% 1.1% 11.7%
Russell Midcap Index 0.2% 1.0% 11.2%
Russell 2000 Index 0.1% 0.1% 2.0%
DJ Industrial Average Index 0.4% 1.6% 8.6%
NASDAQ-100 Index 1.5% 1.6% 17.6%
MSCI EAFE Index 0.9% -0.1% -2.6%
MSCI Emerging Markets Index 0.3% -2.5% 1.4%
Alerian MLP Index -0.6% 0.4% 14.4%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index 0.0% 0.2% 9.0%
Barclays US Aggregate Index 0.0% 0.1% 5.2%
Barclays Municipal Bond Index 0.1% -0.2% 8.1%
BofA Merrill Lynch U.S. High Yield Index -0.3% -0.4% 4.4%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index -0.4% -0.7% 23.1%
FTSE EPRA/NAREIT Global Index 1.0% -0.5% 13.2%
Bloomberg Commodity Index -0.7% -0.7% -7.0%
Gold (NYM $/ozt) Continuous Future 2.2% 1.4% -3.2%
Crude Oil (NYM $/bbl) Continuous Future -3.6% -3.8% -23.0%

Data Source: FactSet and RIMES

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