What’s the Big Deal Now in Greece? Weekly Update – June 1, 2015

U.S. markets ended the week on a down note as investors struggled with weak economic data and concerns about Greek debt negotiations. However, markets were able to end the month of May in the black. For the week, the S&P 500 lost 0.88%, the Dow dropped 1.34%, and the NASDAQ fell 0.38%.[i]

On Friday, we got a look at revised first-quarter gross domestic product (GDP) growth numbers, and we found out that the economy actually shrank 0.7 percent last quarter instead of growing.[ii] The news wasn’t unexpected, as economists knew that the economy struggled with issues like a harsh winter, a port shutdown, and a strong dollar that ate away at U.S. exports. However, it’s unwelcome because it means that the economy still hasn’t reached escape velocity and the recovery may still be fragile.

Though we don’t have data on the spring quarter yet, many economists expect a significant rebound in economic growth. We’ve seen estimates ranging from 1.0 percent to 3.2 percent, so it’s clear that there’s a lot of room for debate.[iii] Markets also took a hit from stalled Greek debt negotiations. Greece is currently deadlocked in talks with creditors for a new round of loans needed to service its debt and make government payments. To give you a brief bit of history: Greece was at the center of the European debt crisis after financial markets imploded in 2008.[iv]

To ward off a sovereign debt default, which might have touched off another European crisis, Greece accepted loans from European and international lenders in 2010. In exchange for the money, Greece agreed to institute austerity measures, massive cuts to government spending, designed to bring the national debt under control.

However, the cuts were deeply unpopular with Greek citizens, and a new leftwing Greek government elected in January rose to power on a wave of anger at the effects of austerity – rampant unemployment, brain drain, and low economic growth.[v]

What’s the big deal now? New Greek leaders refuse to reinstate austerity measures, and their creditors don’t want to extend more loans unless they meet their economic terms. If Greece doesn’t get another infusion of cash by its next debt deadline on June 5, the country will default on debt payments, which may trigger a banking crisis and possible exit from the European Union.[vi] Though the long-term effects of a “Grexit” (Greek exit) can’t be predicted, investors are likely to worry that where Greece goes, other countries may follow.

If Greece fails to reach an 11th-hour deal with its creditors this week, it’s likely that European and U.S. markets would react badly to the news. Let’s hope that this latest round of brinksmanship can be resolved; as always, we’ll keep you informed. The week ahead is also filled with domestic economic data, including the May employment report, which investors hope will show that the labor market continued its upward trend after a March blip.

 

ECONOMIC CALENDAR:

 Monday: Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales, Factory Orders

Wednesday: ADP Employment Report, International Trade, ISM Non-Mfg. Index, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims, Productivity and Costs

Friday: Employment Situation

6-1-15

HEADLINES:

Consumer sentiment beats expectations though still weak. U.S. consumers remain cautious about the current state of the economy, leading some analysts to worry about consumer spending this quarter.[vii]

Durable goods orders fall. Orders for long-lasting factory goods fell in April, but the underlying data indicates that business spending is slowly picking up. Excluding volatile transportation orders, orders climbed 0.5%.[viii]

New home sales rise more than expected in April. Sales of newly constructed single-family homes surged in April, indicating that a housing sector resurgence may be underway. Hopefully, the strengthening job market will support sales activity.[ix]

Pending home sales looking up. A forward-looking indicator of U.S. home purchases rose in April for the fourth straight month in a very positive sign for the housing sector. The gauge rose 14% over April 2014, the highest level since May 2006.[x]

 

[i] http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#{“comparisons”:”^DJI,^IXIC,^GSPC”,”comparisonsColors”:”#cc0000,#009999,#ff00ff”,”comparisonsWidths”:”1,1,1″,”comparisonsGhosting”:”0,0,0″,”range”:”ytd”,”showPrePost”:false}

[ii] http://www.marketwatch.com/story/us-gdp-turns-negative-in-first-quarter-again-2015-05-29

[iii] http://www.marketwatch.com/story/us-gdp-turns-negative-in-first-quarter-again-2015-05-29

[iv] http://www.nytimes.com/2015/04/09/business/international/explaining-the-greek-debt-crisis.html

[v] http://www.theguardian.com/world/2015/jan/25/greece-election-vote-austerity-leftwing-syriza-eu

[vi] http://www.bloomberg.com/news/articles/2015-05-25/greece-points-to-june-imf-payment-as-next-cliffhanger

[vii] http://www.foxbusiness.com/economy-policy/2015/05/29/consumer-sentiment-picks-up-in-may/

[viii] http://www.foxbusiness.com/economy-policy/2015/05/26/durable-goods-orders-slip-match-views-in-april/

[ix] http://www.foxbusiness.com/economy-policy/2015/05/26/new-home-sales-prices-rise-strongly-in-april/

[x] http://www.foxbusiness.com/economy-policy/2015/05/28/pending-home-sales-jump-more-than-expected-in-april/

Fed Upbeat About Economic Recovery Weekly Update – May 26, 2015

ID-100192676Despite flirting with new records, markets weren’t able to hold on to gains last week and closed mixed after comments about interest rates were made by Federal Reserve Chair Janet Yellen. For the week, the S&P 500 gained 0.16%, the Dow lost 0.22%, and the NASDAQ gained 0.81%.[1]

Yellen gave a speech Friday that underlined her determination to raise interest rates this year as long as the economic recovery continues. Though she didn’t really say anything new, her comments underscore the fact that the Fed is committed to returning to normal monetary policy as soon as economists feel the economy can handle it. She also emphasized that interest rate hikes will be done gradually over a period of years, which should help cushion the blow to financial markets.[2]

Could Yellen have been floating the idea to see how markets will react to a more aggressive stance on interest rates? Possibly. If so, the next few weeks could give us an idea of how investors will treat the news. Her speech also highlights her optimism about economic growth despite some weak reports in recent weeks.

Last week’s jobs report showed that the number of Americans filing new claims for unemployment benefits rose slightly to 274,000. However, the four-week moving average, a less volatile indicator, fell to the lowest level since April 2000.[3] Outside of the energy sector, which has lost thousands of jobs due to low oil prices, layoffs in the U.S. have been minimal in the past months.

Though jobless claims (a good indicator of layoffs) rose slightly, claims from Americans renewing unemployment applications fell to the lowest level since November 2000.[4] Currently, the overall trend is one of steady improvement in the labor market, which we hope will translate into higher consumer confidence and spending this summer.

Core inflation data also supports a move to higher interest rates later this year. The Fed has the “dual mandate” of keeping unemployment low and inflation stable and had tied monetary policy changes to two numbers: a headline unemployment rate of 5.2-5.6% and annual inflation of 2.0%.[5] While the employment goal has been reached, the inflation target has been more elusive.

While some economists have worried about too-low inflation, the latest Consumer Price Index (CPI) figures suggest that core CPI, the number most used by economists, rose 1.8% in the last year. This stable rise, just under the Fed’s target, indicates that price pressures remain stable but are moving higher and closer to the 2.0% goal.[6]

Looking ahead, analysts will be closely watching Friday’s second reading of the Q1 Gross Domestic Product (GDP) report. Unfortunately, the news isn’t expected to be good, and many economists expect to see that the economy shrank amid harsh winter weather and dock strikes. However, there’s considerable hope that the economy is rebounding in the second quarter (much as it did last year).[7]

ECONOMIC CALENDAR:

 Monday: U.S. Markets Closed For Memorial Day Holiday

Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, New Home Sales, Consumer Confidence, Dallas Fed Mfg. Survey

Thursday: Jobless Claims, Pending Home Sales Index, EIA Petroleum Status Report

Friday: GDP, Chicago PMI, Consumer Sentiment

2015-05-26

HEADLINES:

Factory growth slows for second month. Growth in the U.S. manufacturing sector, a major driver of economic activity, slowed down for another month in May. New orders increased at a very slow pace, indicating that next month might be slow as well.[8]

U.S. gas prices at six-year low. Just in time for the summer driving season, pump prices across the nation are at a multi-year low. According to AAA, average gas prices were just $2.74 across the country. Hopefully, fuel savings will result in greater consumer spending.[9]

Greece can’t pay its June bills. Greek leaders announced that they won’t be able to make debt repayments next month unless they receive another round of rescue funding. Despite months of negotiation, it’s unclear whether a deal can be reached that would prevent Greek insolvency.[10]

April housing starts surge. Groundbreaking and permits for new homes spiked in April to the highest level in over seven years, indicating that homebuilders were confident about future sales. March numbers were also revised upward in a very hopeful sign for the housing market.[11]

 

 

[1] https://www.google.com/finance?q=INDEXDJX%3A.DJI%2CINDEXSP%3A.INX%2CINDEXNASDAQ%3A.IXIC&ei=wQxiVdmaM5S1mAHoh4BY

[2] http://www.businessinsider.com/janet-yellen-us-economic-outlook-speech-may-22-2015-5

[3] http://www.cnbc.com/id/102697540

[4] http://www.cnbc.com/id/102697540

[5] http://www.foxbusiness.com/economy-policy/2015/05/22/us-consumer-prices-soft-underlying-inflation-pushes-up-116548863/

[6] http://www.foxbusiness.com/economy-policy/2015/05/22/us-consumer-prices-soft-underlying-inflation-pushes-up-116548863/

[7] http://www.foxbusiness.com/economy-policy/2015/05/22/week-ahead-1q-gdp-revision-and-housing-data/

[8] http://www.cnbc.com/id/102698399

[9] http://www.foxbusiness.com/personal-finance/2015/05/22/memorial-day-gas-prices-touch-6-year-low/?intcmp=bigtopmarketfeaturesside

[10] http://www.marketwatch.com/story/greece-wont-meet-imf-repayments-in-june-interior-minister-says-2015-05-24

[11] http://www.cnbc.com/id/102690006

What’s Going On With The Economy and Interest Rates? Weekly Update – May 18, 2015

Image courtesy of FreeDigitalPhotos.net/Danilo Rizzuti

Image courtesy of
FreeDigitalPhotos.net/Danilo Rizzuti

Markets ended on a high note with the S&P 500 setting a new record though economic data was lukewarm.[1] For the week, the S&P 500 gained 0.31%, the Dow grew 0.45%, and the NASDAQ rose 0.89%.[2]

Months of tepid economic data and flirtation with higher interest rates lead many to ask:

What’s going on with the economy, and how will it affect the Federal Reserve’s interest rate decision?

The Fed, which has kept interest rates low to help the economy out of the 2008 financial crisis, needs to start returning to “normal” monetary policy to keep inflation in check and to prevent too-low interest rates from spurring another asset bubble. However, raising rates too soon could derail the economic recovery, so the Fed is being quite cautious.[3]

The Fed has emphasized flexibility in its approach to raising rates, which doesn’t give us much of an idea of when they will raise rates. Right now, the consensus among economists is that the first rate hike will come in September, though it’s not at all certain.[4]

Let’s take a look at a couple of major indicators that give us a brief snapshot of the economy right now:

The latest jobs data shows that the labor market is improving. The economy added 223,000 new jobs in April, and the number of underemployed Americans is dropping.[5] Another recent report shows that the number of workers voluntarily quitting their jobs has hit its highest point since 2008 as Americans gain confidence in new opportunities.[6]

In the first quarter, economic growth flat lined, increasing just 0.2%, due to a combination of factors.[7] However, many economists expect the economy to shake off some of its headwinds and pick up this quarter.

Corporate profits in the first quarter were up a respectable 2.4% for S&P 500 companies (as of May 15, 2015), though revenues were down 3.7%.[8] However, companies have all lowered their expectations for the second quarter, indicating that they’re still worried about domestic and global demand.

All of these indicators paint a picture of an economy that’s still chugging along without showing the breakout growth we had hoped for this year. Though a recession doesn’t seem likely, there are a number of global headwinds that may continue to dog the economy: volatile oil prices, a Chinese slowdown, and tepid consumer spending.

What would the Fed like to see before raising rates?

Recent statements from the Fed indicate that it is still in wait-and-see mode. Waiting to see what? A solid, sustainable turnaround in economic growth that’s supported by the labor market. The deceleration of economic growth in the first quarter and a lack of wage growth gave the Fed pause for thought, and economists will want to see sustainable improvements in indicators like durable goods orders, business investment, and GDP growth before making their next policy move.[9]

What does this mean for investors?

Bottom line: We can expect markets to remain choppy as investors take stock of current conditions and try to determine where markets are going. Overall, we’re cautiously optimistic about market performance. However, we recognize that persistent market highs in the face of mediocre data could set the stage for a short-term pullback. As always, we’re keeping an eye on conditions and will let you know when anything changes.

ECONOMIC CALENDAR:

 Monday: Housing Market Index

Tuesday: Housing Starts

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey, Existing Home Sales

Friday: Consumer Price Index, PMI Manufacturing Index Flash, Janet Yellen Speaks 1:00 PM ET

 5-18-15

Weekly unemployment claims fall unexpectedly. The most recent weekly jobs report showed that layoffs are dropping and new unemployment claims are close to the 15-year lows reached several weeks ago.[10]

HEADLINES:

 Retail sales unchanged from March. Though March numbers were revised upward, April retail sales data was flat as Americans cut back on big-ticket purchases like televisions and autos. Economists had hoped that Americans would spend – rather than save – the money they pocketed from cheaper gasoline.[11]

 China is America’s largest creditor (again). Though central banks around the world have decreased their holdings of U.S. Treasuries, China’s central bank is back on top with $1.261 trillion. Central banks hold foreign currency reserves mainly to cushion currency exchange rate shocks and keep rates steady.[12]

Mortgage applications fall as rates rise. A sharp rise in interest rates last week caused a drop in mortgage applications for both buyers and refinancers. Though mortgage volume is still up 14% from the same time last year, volume is shrinking as homebuyers balk at higher rates.[13]

 

[1] http://www.foxbusiness.com/markets/2015/05/15/indecisive-day-on-wall-street-ends-with-stock-indexes-mostly-higher-sp-500-at/

[2] https://goo.gl/HBaZDb

[3] http://fortune.com/2014/10/08/federal-reserve-interest-rates-2/

[4] http://blogs.wsj.com/economics/2015/05/14/wsj-survey-most-economists-see-fed-raising-rates-in-september/

[5] http://www.foxbusiness.com/markets/2015/05/08/traders-cautious-ahead-april-jobs-report/

[6] http://www.usnews.com/news/articles/2015/05/12/us-workers-are-confident-and-quitting-jolts-report-implies

[7] http://www.foxbusiness.com/markets/2015/04/29/us-gdp-grows-scant-02-in-first-quarter/

[8] http://www.zacks.com/commentary/46056/retail-in-the-spotlight-as-earnings-season-winds-down

[9] http://www.bloomberg.com/news/articles/2015-04-29/what-the-fed-needs-to-see-before-it-raises-rates

[10] http://www.foxbusiness.com/economy-policy/2015/05/14/weekly-jobless-claims-fall/?intcmp=obnetwork

[11] http://www.cnbc.com/id/102674466

[12] http://www.cnbc.com/id/102684920

[13] http://www.cnbc.com/id/102673397

Hixon Zuercher May 2015 Monthly Video Update

First Look at Q1 Economic Growth Weekly Update – May 4, 2015

Image courtesy of FreeDigitalPhotos.net/cooldesign

Image courtesy of
FreeDigitalPhotos.net/cooldesign

Markets fell last week as investors digested lukewarm economic data and considered future economic growth prospects. However, stocks bounced back on Friday and trimmed their losses. For the week, the S&P 500 lost 0.44%, the Dow slid 0.31%, and the NASDAQ dropped 1.70%.1

Last week, investors got their first look at Q1 economic growth. The advance estimate of Gross Domestic Product showed that the economy basically ground to a halt in the first quarter, growing just 0.2%. Though this early report is based on incomplete data, the picture so far shows that exports plunged, businesses slashed spending, and consumers kept their pocketbooks closed.2

While some of the weakness is due to a cold winter and a West Coast port strike, the effects of a strong dollar and weak global demand may linger into the second quarter. So far, we know that consumer spending edged upward in March and that wages increased in the first quarter, giving Americans more money to spend.3

The Federal Reserve’s policy-setting Open Market Committee also met last week to take stock of the economy and discuss future interest rate policy. As expected, the central bank made no moves to raise rates and emphasized that any future rate hikes will be based on a careful analysis of the economic environment. Bottom line: It’s unlikely that rate hikes will come before the fall.4

Can markets sustain the rally amid sputtering economic growth? We can’t know for sure, but we are keeping a close eye on factors like business investment, corporate expectations, and future economic growth projections to guide our decision-making process. While fundamentals show that the economy is still growing, obstacles like weak business investment, cautious spending, and global growth concerns may lead to a market pullback in the coming weeks and months.

Since the bottom of the last bear market in 2009, the S&P 500 has returned over 200%.5 Though we’ve had some bumps in the road, we haven’t experienced a serious 10%+ correction since 2011.6 Some analysts believe that we are overdue for pullback while others have a brighter outlook on market performance.7 Since history never repeats itself exactly, we don’t believe it’s useful to worry about what might be around the corner. Instead, we focus on creating personalized strategies that pursue our clients’ goals and then make prudent adjustments as conditions warrant.

ECONOMIC CALENDAR:

Monday: Factory Orders

Tuesday: International Trade, ISM Non-Mfg. Index

Wednesday: ADP Employment Report, Productivity and Costs, Janet Yellen Speaks

9:15 AM ET, EIA Petroleum Status Report

Thursday: Jobless Claims

Friday: Employment Situation

Capture

HEADLINES:

Weekly jobless claims plummet. The number of Americans filing new claims for unemployment benefits, an indicator of layoffs, fell to the lowest level since 2000. These numbers suggest that the weak March jobs report was a seasonal aberration.8

April consumer sentiment at 2nd highest level since 2007. A monthly indicator of consumer sentiment rose last month as Americans became more optimistic about current and future conditions. Though consumers are worried about interest rates, they are more confident about jobs and income prospects.9

Motor vehicle sales driven by trucks and SUVs. Cheap gas appears to have reignited Americans’ love affair with big vehicles; though April is typically a slow month for auto sales, demand for sport-utilities and trucks accounted for about half of April’s sales.10

Manufacturing growth slows in April. Though the manufacturing sector is growing, the pace of growth fell last month to the slowest pace in almost two years. Though new orders are up (a good sign for future growth), employment is down to its lowest level in five years.11

How a Few Key Players Boosted Performance This Week Weekly Update – April 27, 2015

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Image courtesy of
FreeDigitalPhotos.net/renjith krishnan

Markets rallied last week, lead by a surge in tech stocks that brought the NASDAQ and S&P 500 to new record closes. For the week, the S&P 500 gained 1.75%, the Dow grew 1.42%, and the NASDAQ added 3.25%.1

After weeks of uncertainty, markets shook off the doldrums and rallied on the back of earnings beats from market heavyweights. Without any major economic events having occurred last week, market performance was driven by reactions to the earnings reports of a few key players.2

Have earnings reports justified the stock market’s reaction? Not really. Right now, it seems as though expectations going into earnings season were so low that any positive news was greeted with cheers. While total profits for 202 S&P 500 companies were up 8.7% over first quarter 2014, revenues were essentially flat. Weak revenue numbers indicate that companies struggled with slow demand last quarter and achieved profitability through cost-cutting measures. Looking ahead at the rest of earnings season, some analysts project that overall earnings for S&P 500 companies will be flat on 5.1% lower revenues.3 Worse, currency headwinds from a strong dollar and global economic issues may affect demand in the second quarter as well.

The week ahead is packed with important economic events: a Federal Reserve Open Market Committee meeting, the first estimate of Q1 economic growth, and a raft of company earnings reports. No interest rate changes are expected at the Fed’s policy-setting meeting, but officials may clarify their thoughts on first quarter economic performance.

Right now, the future timing of rate changes is anyone’s guess. Economists are focusing on determining how much of weak first quarter data is weather related and how much was due to lingering economic forces like a strong dollar and soft global growth. Though a June rate hike isn’t off the table, some Fed officials are hinting that higher interest rates might come later in the year.4 With respect to markets, we can expect further volatility as investors digest earnings reports and economic data.

A special security note:

Due to a global increase in financial identity theft and email hacking, please do not send confidential information such as social security numbers, EIN, DOB, account numbers or any other sensitive data via email.  Also, please do not email trade requests as they cannot be acted upon without verbal communication and confirmation. For security reasons, we need you to reach out to the office directly regarding these matters.

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey

Tuesday: S&P Case-Shiller HPI, Consumer Confidence

Wednesday: GDP, Pending Home Sales Index, EIA Petroleum Status Report, FOMC Meeting Announcement, 2:00 PM ET

Thursday: Jobless Claims, Personal Income and Outlays, Employment Cost Index, Chicago PMI

Friday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg. Index, Consumer Sentiment, Construction Spending

Capture

HEADLINES:

Weekly jobless claims rise for third straight week. Though the number of Americans claiming new unemployment benefits rose again last week, the underlying trend shows that the labor market is improving. Seasonal issues like school breaks and Easter holidays tend to make numbers more volatile this time of year.5

Tight housing supply holding back market. A limited number of homes for sale is keeping back a spring surge in the housing market. Nearly three-quarters of the available homes for sale are “stale” and have sat on the market for more than a month with little buyer interest. High prices may be turning off prospective buyers.6

No Greek deal in sight. As the deadline to a Greek debt bailout edges closer, no permanent solution is emerging. Greece is having trouble repaying loans to Eurozone creditors, and lenders warned Friday that no fresh aid will come unless the cash-strapped nation agrees to serious economic reforms.7

Oil prices diverge. Though U.S. crude oil prices fell on worries of another production glut, international Brent crude prices rose to 2015 highs as fighting in Yemen threatened supplies. This push-pull in prices makes it hard for analysts to predict the direction of prices.8

Earnings Season Is Still Young: Here Are the Facts Weekly Update – April 20, 2015

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Events in China and Europe triggered a modest worldwide sell-off last week, and lackluster corporate earnings in the U.S. contributed to market doldrums. For the week, the S&P 500 fell 0.99%, while the Dow and the NASDAQ both lost 1.28%.1

Investors sent stocks lower early in the week as they grappled with revenue growth problems in first quarter earnings reports. Nearly three-quarters of the S&P 500 companies that have reported earnings so far have beat profit expectations, but fewer than half of those companies have exceeded revenue expectations.2 These results mean that firms are overcoming weak demand by carefully managing their expenses. Even so, cost cutting has its limits if sales don’t eventually pick up.

However, earnings season is still young, and several big-name U.S. firms are scheduled to report this week. Once firms such as Morgan Stanley [MS], Amazon [AMZN], Boeing [BA], and General Motors [GM] release their data, investors may have a better view into whether markets will snap back from last week’s fall.

U.S. investors got nervous last week when fears that Greece will exit the euro (the so-called Grexit) rose again after negotiations faltered between Greek leaders and creditors. A Greek exit from the euro would likely have serious consequences for the rest of the Eurozone. Both sides must come to an agreement soon if Greece is to avoid defaulting next month on loans. In response to the tension, bond yields on Greek debt rose and European stocks suffered their biggest fall since the middle of January.3,4

Meanwhile, new stock trading rules in China sparked more investor concerns. Chinese regulators introduced new rules banning some kinds of high-margin trading. Higher margins put traders at risk of greater losses if stock markets drop. China wants to protect an equity market that may be overheating and an expanding economy that may be cooling off.5

This week, investors are looking forward to a heavy flood of earnings reports as first-quarter earnings season kicks into high gear. Though it’s too early to predict overall earnings, the tough growth picture – largely due to headwinds from the strong U.S. dollar, weak overseas growth, and low oil prices – may make it hard for companies to beat their revenue expectations.

ECONOMIC CALENDAR:

Wednesday: Existing Home Sales, EIA Petroleum Status Report

Thursday: Jobless Claims, PMI Manufacturing Index Flash, New Home Sales

Friday: Durable Goods Orders

Capture

HEADLINES:

Rising gas prices nudge inflation up. The consumer price index, an indicator of inflation, increased 0.2% in March, thanks to higher oil and gas prices, although it’s still down 0.1% for the past 12 months. The slight rise suggests inflation may start heading toward the Federal Reserve’s 2.0% target, if the strong U.S. dollar doesn’t stand in its way.6

Consumer sentiment rises. An early measure of consumer confidence was higher in April than in March, surpassing economists’ expectations and indicating that Americans may be more optimistic about their prospects this quarter.7

Homebuilders feel more confident. An index that tracks expectations of future home sales reached its highest level of the year in April, slightly beating expectations. Job growth and low interest rates are likely contributing to homebuilder optimism about the housing market.8

Retail sales rebound in March. After a slow start to the year, retail sales rose 0.9% in March as Americans went shopping. Higher motor vehicle, furniture, and clothing sales show that the consumer sector is still strong, potentially raising first quarter economic growth numbers.9

Fresh Data Suggestions: Economy Still On Track Weekly Update – April 13, 2015

Image courtesy of FreeDigitalPhotos.net/suphakit73

Image courtesy of
FreeDigitalPhotos.net/suphakit73

Stocks ended the second week of the new quarter on a high note, giving the Dow its first close over 18,000 for the month. Investors took confidence from some major corporate deals as well as fresh data that suggests the economy is still on track.1 For the week, the S&P 500 added 1.70%, the Dow grew 1.66%, and the NASDAQ gained 2.23%.2

With earnings season in focus, investors have temporarily put Fed worries and economic issues on the back burner in favor of seeing how U.S. businesses performed last quarter. Thomson Reuters analysts predict that S&P 500 companies saw their profits decline by 2.9% from Q1 2014.3 Falling oil prices and a strong dollar likely chipped away at energy company earnings as well as those of firms that depend on overseas sales (and had to convert profits back into dollars).

Earnings estimates have come down sharply in recent months. In the chart below, you can see that for the past year, the trend has been for earnings expectations to start relatively high (in blue), drop significantly as the quarter proceeds (in red), and then, in three of the last four quarters, exceed expectations (in green).4

Capture

Corporate managers have an incentive to set the bar low so that they can over-deliver on earnings and reap the reward as investors react positively to the news. However, past performance is no guarantee of future return, and we’re not guaranteed to see positive earnings surprises this season. The size of negative earnings revisions is unusually large as companies were forced to account for slower economic growth and volatile oil prices. However, we can remain hopeful that the historical trend will hold.

As we look toward the official start of earnings season this week, we can count on seeing some winners and losers. While energy companies will likely be hit hard by petroleum prices, financial firms and medical firms may see outsized performance. Though we can’t predict the market, we can stay alert for opportunities amid the potential volatility.

ECONOMIC CALENDAR:

Monday: Treasury Budget

Tuesday: PPI-FD, Retail Sales, Business Inventories

Wednesday: Empire State Mfg. Survey, Industrial Production, Housing Market Index, EIA Petroleum Status Report, Beige Book, Treasury International Capital

Thursday: Housing Starts, Jobless Claims, Philadelphia Fed Business Outlook Survey

Friday: Consumer Price Index, Consumer Sentiment

Capture

HEADLINES:

Wholesale inventories edge up in February. Warehouse stocks of products for sale rose slightly in February, indicating that businesses may not be restocking aggressively because of weak sales.5

Import prices fall in March. The cost of imported goods fell last month as rising oil costs were offset by declining prices elsewhere. Import prices are a major contributor to inflation calculations and weak inflation may delay the Fed’s interest rate increases.6

Weekly jobless claims rise less than expected. The number of Americans filing for new unemployment benefits rose slightly last week, bringing the four-week average to the lowest level since 2000. These numbers suggest that the slow job growth in March was a seasonal fluke.7

Oil prices stabilize on production plateau. Global oil prices rose for the fourth straight week on expectations that drilling production will stabilize and the supply glut will recede. The number of oil rigs in the U.S. has dropped significantly, indicating that domestic production may be topping out.8

Hixon Zuercher April 2015 Monthly Video Update

Stocks End Q1 Flat Weekly Update – April 6, 2015

“Image courtesy of FreeDigitalPhotos.net/hywards

“Image courtesy of
FreeDigitalPhotos.net/hywards

After a volatile winter, stocks ended the quarter about where they started. Oil prices, a strong dollar, and concerns about interest rates contributed to the volatility and uncertainty remains as we enter the second quarter. For the quarter, the S&P 500 gained 0.47%, the Dow lost 0.32%, and the NASDAQ gained an outsized 3.68%.1

What are some of the factors that affected market performance in Q1?

Economic growth data suggested that the economy might have slowed at the beginning of the year. After a strong third quarter of 2014, the economy lagged in the final three months of the year, clocking in just 2.2% growth. Overall, the economy grew 2.4% in 2014, up from 2.2% in 2013.2  While we don’t have official first quarter GDP numbers, unofficial estimates suggest that economic growth may have ground to a halt in the first quarter.

Though 0.0% GDP growth isn’t great news, keep in mind that the economy shrank 2.1% in the first quarter of 2014 and then rebounded to grow 4.6% in the second quarter and 5.0% in the third quarter.3 There’s no guarantee that we’ll see a repeat of last year’s trend, but warmer spring weather may translate into stronger consumer spending and housing market activity.

Much of the slowdown in growth can be attributed to the effects of the strong dollar and weak oil prices. While cheap oil is a windfall to U.S. consumers who benefit from lower pump prices, volatile prices are hitting domestic oil producers hard. The strong U.S. dollar, which gained over 15.0% on the euro last quarter, has also affected demand for U.S. products.4

Investors were also concerned about weak overseas growth, which is affecting corporate profits. The U.S. economy has disengaged from global growth and is leaving many other economies behind. Though domestic demand is strong, lagging economic growth in Europe and other economies is complicating the global growth picture. However, the European Central Bank has stepped up to undertake its own quantitative easing program and we can hope that Eurozone growth will accelerate.5

The labor market continued to make important strides last quarter, adding over half a million new jobs. The overall unemployment rate dropped to 5.5% – the lowest rate in six years. Wage growth also picked up as employers were forced to offer higher pay to attract workers.6 However, the March jobs report shows that the economy created just 126,000 new jobs, less than half of February’s gain and the smallest gain in over a year.7 Was March just an off month because of oil prices and a cold winter? That’s the question the Fed will need to answer as it ponders future interest rate moves.

What could act as headwinds in the weeks and months to come?

The Federal Reserve has been a big player over the last few months and speculation around future monetary policy decisions will likely cause market volatility in the coming weeks and months. Now that economy-stimulating bond purchases have ended, the Fed is planning to raise interest rates sometime this year. Though March’s disappointing jobs report may give Fed economists pause for thought, interest rate changes may cause investors to get nervous. We know that the Fed is carefully monitoring data and will make only gradual changes to rates, so we can hope that market reactions will be brief.

Markets are running high, with the S&P 500 closing within 5.0% of its all-time high for 56 of the 61 trading days last quarter. Such strong investor optimism can sometimes presage a pullback as investors pause to take stock of the market environment. Is a pullback certain? Certainly not. We don’t have any way to predict what will happen so we focus on setting reasonable goals, managing risk, and keeping a careful eye on market movements.

Bottom line: Though many domestic economic fundamentals are strong going into the spring, weak oil prices, a resurgent dollar, and stagnant overseas growth could cloud the picture. As Q1 earnings trickle in, positive surprises could translate into additional market upside. However, earnings estimates have come down in recent weeks and corporate profits may be affected by rising wages and slower growth.8

Since we can’t know where markets are going with any certainty, we recommend staying focused on your long-term goals and keeping short-term performance in perspective. We are continuously monitoring markets and are prepared to make changes as conditions warrant.

If you have any questions about your investment strategy, please give us a call. We’d be delighted to discuss it with you.

ECONOMIC CALENDAR:

 

Monday: ISM Non-Mfg. Index

Tuesday: JOLTS

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims

Friday: Import and Export Prices, Treasury Budget

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HEADLINES:

Consumer spending flat in February. Spending by U.S. consumers barely moved in February as savings levels rose to their highest levels in more than two years. While this may affect economic growth in the first quarter, it may bode well for future spending.9

Motor vehicle sales edge upward in March. Consumer demand for new vehicles picked up slightly last month. Sales were driven largely by demand for foreign cars and big trucks and SUVs from domestic manufacturers.10

Factory orders surge in February. Despite the strong U.S. dollar, new orders for manufactured goods unexpectedly rose 0.2% in February after six straight months of declines. Excluding volatile transportation orders, factory orders rose 0.8%.11

U.S. trade deficit narrows. The gap between imports and exports narrowed in February as a strong dollar and a labor dispute at one of America’s main ports affected trade. The small deficit may raise first quarter GDP estimates.12