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Weekly Vantage Point | Week of 6.6.2016

 
Weak Jobs Data Chills Stocks

June 6, 2016 – U.S. stocks ended a holiday-shortened four-day trading week essentially where it began. The S&P 500 finished lower on Friday, ending at 2,099.13 versus 2,099.06 a week earlier, after a disappointing May payrolls report showed the economy added the fewest new jobs since September 2010. Just 38,000 new jobs were added last month. While the unemployment rate fell from 5% to 4.7%, it declined mostly because more Americans dropped out of the labor force. The report triggered concerns about consumer confidence and the future pace of consumer spending, causing the benchmark equity index to retreat from its seven-month high and the safer asset havens of gold and Treasuries to rally.

In other key economic data, personal spending climbed 1% - the most since June 2005, while wages rose 0.4%, in line with estimates. Home prices rose 0.9% in March and continue to trend higher, especially in the West as retiring baby-boomers move to less populated areas. The ISM non-manufacturing (service sectors) activity expanded in May at the slowest pace since February 2014. Lastly, the U.S. trade deficit slightly widened in April as annual revisions widened the March tally, which showed a large 4.6% decline in imports. April imports rose 2.1%, while exports rose 1.5%.

Friday's jobs setback reinforced views that the S&P 500 remains mired in a trading range that has prevailed since the index hit its all-time record a year ago. For the week, the S&P 500 rose 0.04%; the Dow Industrials fell 0.37%; and the NASDAQ Composite gained 0.19%. Six of the ten major sectors ended higher last week, led by Utilities (+2.56%) and Healthcare (+1.51%). Financials (-1.24%) and Energy (-1.02%) fell the most. The US Dollar Index fell 1.56%, snapping three weekly gains, ending at 94.029. Gold futures jumped $33.25/oz. on Friday, ending the week up 2.58%. Treasuries prices rallied, pulling the yield on 10-year Treasury notes down 15.1 basis points to 1.701%.

 
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Week’s Economic Calendar
 

Monday, June 6: Labor Market Conditions;

Tuesday, June 7: Productivity & Costs, Consumer Credit at 3 pm ET;

Wednesday, June 8: MBA Mortgage Applications Activity, JOLTS;

Thursday, June 9: Weekly Jobless Claims, Wholesale Trade;

Friday, June 10: Consumer Sentiment.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -0.37% 0.11% 5.09% 2.19% -1.49%
S&P 500 0.04% 0.13% 5.88% 3.71% 1.49%
NASDAQ 0.19% -0.11%% 5.35% -0.72% -1.86%
Russell 3000 0.21% 0.24% 6.31% 3.66% 0.00%
MSCI EAFE 0.18% 0.23% 5.13%% -0.88% -10.33%
MSCI Emerging Markets 1.05% 1.13% 5.15% 3.48% -16.01%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.67% 0.61% 2.14% 4.09% 4.88%
Barclays Municipal 0.25% 0.19% 1.85% 2.89% 6.55%
Barclays US Corp High Yield 0.16% 0.03% 7.26% 8.09% -0.51%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 1.96% 2.12% 13.44% 11.06% -13.54%
S&P GSCI Crude Oil -1.44% -0.98% 40.64% 31.26% -18.44%
S&P GSCI Gold 2.15% 2.09% -1.22% 17.23% 4.88%
Source: MorningStar
Chart of the Week: Interpreting May Payrolls; Risks Skewed to the Downside
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There are three messages to take from the U.S. May employment report. First, labor demand is waning, as job growth (adjusted for the Verizon strike effect) slowed to a 127,000 monthly average pace over the past three months (Figure 1). Second, hopes for a sustained pickup in labor supply were dashed as the participation rate has now retraced most of its recent rise. Job growth is still running faster than the underlying trend in the labor force and the US unemployment rate is now at an expansion low of 4.7%. Third, tight labor markets look to be lifting labor costs. Average hourly earnings are tracking 3% annualized this quarter, an outcome that would match its high for this expansion.

JPMorgan said Friday's job report validates their concern that firms might turn more cautious and that a run of stronger labor income gains may be coming to an end. As such, JP Morgan's outlook that U.S. growth rises above 2% during second-half of 2016 places greater weight on households cushioning the impact of slowing job growth and rising energy prices with a decline in the saving rate. Consumption news has been upbeat with strong April spending readings this past week and yet, while their forecast is unchanged, the risks have skewed to the downside.

Indeed, JPMorgan's recession probability tracker suggests that risks are creeping higher with the probability of a recession in the next 12 months reaching 36% this past week (Figure 2). It is important to note that their discomfort outlook view contrasts notably with financial markets, where implied recession probabilities have moved lower. To sum things up, the Fed likely shares JPMorgan's tracker discomfort and is therefore likely to remain on hold until they gain confidence that the expansion is on firmer footing. A June hike is most likely off the table, and a sharp data pickup in activity is needed for a July hike to be realized.

Weekly Vantage Point | Week of 5.31.2016

 
Best Weekly Gain in Nearly Three Months

May 31, 2016 – U.S. stocks rose last Friday, sending the S&P 500 to a five-week high and its strongest weekly gain since March 4th. Equities recovered from a Friday dip sparked by a speech from Fed Chair Janet Yellen signaling a rate hike may be appropriate in "the coming months." Commerce officials said their second of three first quarter GDP estimates was upwardly revised to 0.8% from 0.5%, while on Thursday the Atlanta Fed's GDPNow forecast model for second quarter growth rose to 2.9% from 2.5%. The model adjusts its forecast with incoming economic data and officials said the increase came as private investment growth increased from -0.3% to 0.4% following a stronger-than-expected durable goods report.

After approximately two years in which speculation over the timing of rising interest rates has increased market volatility, investors are appearing more comfortable with the idea of a 2016 summer rate rise. Last week's biggest surprise in economic data was on Tuesday, when new home sales in April surged nearly 17% to the highest annualized level since the beginning of 2008. Durable goods orders for April jumped 3.4%, topping forecasts for 0.5% and followed a 1.9% March increase. Lastly, the University of Michigan's consumer confidence index rose less than forecast for May, as officials cited election concerns.

For the week, the S&P 500 gained 2.32%; the Dow Industrials advanced 2.13%; and the NASDAQ Composite jumped 3.48%, its best weekly gain since February 19th. All ten major sectors advanced on the week, led by Technology (+3.64%), Financials (+2.65%) and Healthcare (+2.19%). Energy (+1.50%) and Utilities (+1.23%) rose the least. The US dollar index gained 0.19% for third weekly gain, ending at 95.521, while gold futures sank nearly $40/ounce, or -3.13%. Copper prices, regarded as an economic bellwether, rose 2.8% last week, its first weekly gain in a month. Treasuries prices edged lower last week, pushing the yield on 10-year Treasury notes up just 1.3 basis points to end at 1.852%.

 
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Week’s Economic Calendar
 

Monday, May 30: Memorial Day, all markets closed;

Tuesday, May 31: Personal Income & Outlays, Home Price Index, Chicago PMI, Consumer Confidence, Dallas Fed Mfg Survey;

Wednesday, June 1: ADP Private Employment, Markit Mfg Index, ISM PMI Mfg., Construction Spending, Fed Beige Book;

Thursday, June 2: Challenger Job-Cut, Weekly Jobless Claims;

Friday, June 3: May Non-farm Payrolls, U.S. Trade Deficit, Factory Orders, and ISM Non-Mfg. Index.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 2.13% 0.56% 7.41% 2.57% -1.59%
S&P 500 2.32% 1.89% 8.35% 3.67% 1.06%
NASDAQ 3.48% 3.52% 7.86% -0.91% -2.16%
Russell 3000 2.41% 1.82% 8.87% 3.44% -0.46%
MSCI EAFE 2.21% -0.86% 8.66% -1.06% -10.38%
MSCI Emerging Markets 2.97% -3.66% 9.73% 2.40% -18.73%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.15% -0.03% 1.42% 3.40% 3.14%
Barclays Municipal -0.16% 0.21% 1.31% 2.63% 6.03%
Barclays US Corp High Yield 0.77% 0.48% 9.67% 7.91% -0.88%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 0.71% -0.04% 13.34% 8.92% -14.37%
S&P GSCI Crude Oil 1.90% 7.43% 50.49% 33.18% -14.20%
S&P GSCI Gold -3.13% -5.72% -0.30% 14.76% 2.54%
Source: MorningStar
Chart of the Week: Euro-Area Capital Spending Slowly Recovers; Construction Side Drag Lessens
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The recovery in the Eurozone's overall capital spending is gathering steam. Last year, capital expenditures (capex) grew at a 3.4% annualized pace, slightly faster than in the 1999-2007 period. There are two very different parts to European capex, with spending on machinery, transport equipment, and intellectual property recovering solidly. The "non-construction" spending has returned to the pre-2008 peak, grew by 5% last year, and is rising again as a share of the region's GDP.

In contrast, Eurozone construction spending finally has stabilized but, as the chart above shows, it is not yet contributing significantly to the euro-area's recovery. JPMorgan believes this may be because it was more overextended at the peak in 2007, at least when measured in nominal terms. There are tentative signs, however, that a turn in construction has begun. Both the construction confidence survey index and the construction PMI have been improving steadily over the past three years, while residential and commercial property prices have also been picking up.

For now, most of these signs point to only a modest turn. Yet given the very favorable financing conditions and significant scope for a cyclical recovery from low levels, the belief is there is a significant potential for the recovery in construction spending to strengthen.

Remember your goals; in times of good and bad

There’s no question that periods of increased market volatility can be unsettling for investors. However, the decisions you make now—choosing to stay the course or move to the sidelines—can have long-lasting implications. In fact, making emotionally-based decisions in regard to short-term market events is one of the fastest ways to derail your long-term investment strategy.

That’s because it’s impossible to accurately time the financial markets. As a result, investors tend to opt out at the worst time, when markets are falling, and buy back in at higher prices when markets begin to rise. On the other hand, those who remain invested and focused on their long-term investment goals, have an opportunity to buy additional shares at lower prices when stock prices drop, which helps to generate long-term portfolio growth.

A time-tested approach to managing investments through periods of uncertainty is to focus on asset allocation:

  • An appropriate asset allocation, aligned with your goals, timeframe, and tolerance for risk allows you to concentrate on your long-term objectives instead of getting sidetracked by short-term market fluctuations.
  • Helps eliminate the potential for emotional decision-making that could have an adverse impact on your long-term investment strategy.

If you’re concerned about the impact of current market conditions on your portfolio, We encourage you to contact PlanningWorks at 512 498-7526 to review your current allocation, and discuss your long-term goals and risk tolerance.
 

Asset allocation, which is driven by complex mathematical models, should not be confused with the much simpler concept of diversification. Asset allocation does not guarantee profit or protect against loss.

Weekly Vantage Point | Week of 5.23.2016

 
Stocks Rebound Despite Rising Rate Outlook

May 23, 2016 – The benchmark S&P 500 rose on Friday, rebounding from a seven-week low on Thursday and finished the week fractionally higher, snapping a three-week losing streak. Gains on Friday were led by strength in technology, particularly among chipmakers which, as a group, rose the most since January. The week was marked by mostly positive economic data, mixed quarterly earnings reports and the Federal Reserve's Wednesday afternoon release of their April policy meeting minutes. The minutes signaled policymakers are in favor of raising interest rates in June if the economy is strong enough by then. Pricing of Fed Funds futures now implies the odds for a June rate hike at 32%, up from 4% at the beginning of the week. The probability for 50/50 odds moved up to July from as late as February 2017.

In other key economic data last week, an index of regional manufacturing in New York fell back into contraction, housing starts grew more than forecast, and the consumer price index climbed 0.4% in April, the most since February 2013. Total industrial production rose 0.7% last month, with factory output - a subset representing 75% of overall production - increasing for the first time in three months (+0.3%). Jobless claims fell last week from a one-year high. Lastly, existing home sales advanced to a three-month high, led by a 12.1% jump in the Midwest, the strongest since December 2006.

For the week, the S&P 500 gained 0.35%, the Dow Industrials slipped 0.04%, and the NASDAQ Composite jumped 1.16%%. Five of the ten major sectors advanced, led by Energy (+1.74%), Technology (+1.51%), and Financials (+1.43%). Utilities (-2.22%) and Telecom (-2.09%) fell the most. The US dollar index gained 0.77% for a second week, ending at 95.334, while gold futures lost 1.64%. Treasuries prices fell last week, pushing the yield on 10-year Treasury notes up 13.8 basis points to end at 1.84%.

 
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Week’s Economic Calendar
 

Monday, May 23: No major economic releases;

Tuesday, May 24: Markit Flash PMI Mfg Index, New Home Sales;

Wednesday, May 25: MBA Weekly Mortgage Applications, U.S. Trade Deficit;

Thursday, May 26: Weekly Jobless Claims, Durable Goods Orders, Pending Home Sales;

Friday, May 27: 1Q GDP Revision, University of Michigan's Consumer Sentiment.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -0.20% -1.53% 6.77% 0.44% -4.28%
S&P 500 0.35% -0.42% 7.61% 1.31% -1.31%
NASDAQ 1.16% 0.04% 6.23% -4.24% -4.79%
Russell 3000 0.44% -0.58% 8.30% 1.01% -2.89%
MSCI EAFE 0.31% -3.01% 6.47% -3.20% -13.28%
MSCI Emerging Markets -1.32% -6.44% 6.47% -0.55% -22.32%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.62% -0.18% 1.29% 3.24% 3.45%
Barclays Municipal -0.18% 0.37% 1.20% 2.80% 6.51%
Barclays US Corp High Yield 0.20% -0.29% 10.56% 7.09% -1.40%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 0.48% -0.75% 13.07% 8.15% -17.40%
S&P GSCI Crude Oil 3.22% 5.42% 52.47% 30.70% -17.89%
S&P GSCI Gold -1.49% -2.67% 2.05% 18.47% 3.81%
Source: MorningStar
Chart of the Week: Deflation No Longer an Imminent Risk
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U.S. inflation has been picking up, following a prolonged period of subdued price rises. We see signs of rising inflation over the short term, with deflation no longer an imminent risk, according to BlackRock strategists. As the above purple line shows, the Consumer Price Index (CPI) rose in April, rising the most since February 2013. Seen another way, the strength in the CPI exceeds that of the forward-looking prices paid surveys, here the Institute for Supply Management's Prices Index, the green line.

Energy supply-demand fundamentals are turning from a headwind into a tailwind for inflation. Oil supply has tightened and demand is picking up, primarily out of China and India. This suggests current prices look increasingly sustainable, unless there is a significant reopening of idled shale-oil production. It points to energy's downward pressures on inflation beginning to subside, in line with the view expressed in hawkish Fed meeting minutes released last week.

BlackRock's analysis suggests rising U.S. inflation pressures will persist, as factory-gate price increases are passed on to consumers. It is not just the rebound in energy prices pushing inflation higher. An appreciating U.S. dollar is abating as a headwind. Prices of more stable service-based components of the CPI are also rising. Wages, too, are moderately increasing, as are survey-based consumer inflation expectations.

Get all of your documents in one place

If you were to pass away or become incapacitated, your loved ones may be responsible for making decisions about your health or estate. During a time of emotional distress or grieving, it is difficult to think about money and how to find critical documents to move forward with plans. That’s why it’s important to get your documents into one centralized place. By doing so, you are not only ensuring your wishes are understood, but also are planning to help loved ones make financial arrangements in your absence.

How to get started with organizing your documents today
First, find a secure location, such as a password-protected online vault, fireproof home safe or bank safe deposit box. Decide which documents should go into this centralized place. If you want to minimize clutter, you may consider printing out the links to online statements with their corresponding passwords. Include any documents containing crucial financial information. Here's a list of suggested documents:

  • Quarterly and Annual Statements: IRAs, 401(k)s, funds, brokerage accounts, statements from last quarter and statements from the end of the previous calendar year (that is, the last Q4 statement you received).
  • Healthcare Benefit Information: Medicare or Medicare Advantage Plan, group health plan, individual health policies, LTC policies and contact information for insurers, HMOs, your doctor(s) and your insurance agent.
  • Life Insurance Information: document when level premiums on straight term policies end, the death benefit and present cash value on any whole life policies and the required premiums on any policy.
  • Beneficiary Designation Forms: beneficiary designations often take priority over requests made in a will when it comes to 401(k)s, 403(b)s and IRAs. Also, retain copies and review them with a retirement planner or attorney so they can help you gauge the tax efficiency of the eventual transfer of assets.
  • Social Security Basics: if you have not claimed benefits yet, include your Social Security card, W-2 form from last year (or Schedule SE and Schedule C plus 1040 form), and certified copies of your birth certificate, marriage license, divorce papers, military discharge paperwork or proof of citizenship, if applicable.
  • Social Security Statements: take a screenshot or print a copy of the statement that tracks your accrued benefits.
  • Pension Matters: collect special letters or bulletins from your employer, your Individual Benefit Statement, your Summary Plan Description and contact information for someone at the employee benefits department where you work.
  • Real Estate Documents: deeds, mortgage documents, property tax statements, homeowner insurance policy and a list of the contents in your home and their estimated value.
  • Estate Planning Paperwork: your estate plan, any trust paperwork, a will and a durable power of attorney or health care directive.
  • Tax Returns: at least have a copy of your 1040 and state returns from the prior year.
  • List of Digital Assets: contents of a cloud, a photo library, social media pages and all corresponding passwords.

Once you are ready, be sure to tell your loved ones where to find your documents and provide them with password information or permission to access to your safe deposit box, if necessary.

Planning for the unexpected now is a lasting way to show your loved ones you care. Please contact PlanningWorks if you would like further direction on estate planning or other financial matters.

Weekly Vantage Point | Week of 5.16.2016

 
A Third Week of Equity Losses

May 16, 2016 – The Dow Industrials and S&P 500 declined Friday, extending losses into a third week, their longest losing streak since January. Investors were primarily put off by weak first quarter earnings announcements within retail, particularly among brick and mortar-based apparel firms, falling to a three-month low. An improving retail sales report for April, up 1.3% from -0.3% in March, did little to limit Friday's losses. On a year-over-year basis however, retail sales are up 3%. Despite a strong start, the S&P 500 ended the week with a three-day slide of 1.8% and finished below its 50-day moving average for the first time in two months.

In other key economic data last week, a reading of small business optimism improved one point in April to 93.6, while March job openings waiting to be filled jumped by 149,000 to 5.76 million, the second-largest total since July. Import prices rose in April, but at less than half the amount forecast and remain down 5.7% from a year ago. Weekly claims for unemployment benefits rose to a one-year high, but stayed below the 300,000 level for a 62 consecutive week. Lastly, producer prices rebounded in April, while an early reading of May consumer sentiment also improved.

For the week, the S&P 500 fell 0.44%, extending its three-week decline to 2%; the Dow Industrials lost 1.16%; and the NASDAQ Composite fell 0.36%. All ten sector groups ended negative, with Consumer Discretionary erasing its YTD gain, similarly joining Technology, Healthcare, and Financials in the red this year. The US dollar index gained 0.77% over the week, ending at 94.608, while gold futures lost 1.15%. Treasuries prices climbed higher for a third week, pulling the yield on 10-year Treasury notes down 7.9 basis points to end at 1.70%.

 
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Week’s Economic Calendar
 

Monday, May 16: Empire State Mfg., Housing Market Index;

Tuesday, May 17: Consumer Price Index, Housing Starts, Industrial Production;

Wednesday, May 18: MBA Mortgage Applications;

Thursday, May 19: Jobless Claims, Philadelphia Fed Business Outlook;

Friday, May 20: Existing Home Sales.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -1.16% -1.34% 9.78% 0.63% -2.90%
S&P 500 -0.44% -0.77% 10.35% 0.96% -0.31%
NASDAQ -0.36% -1.11% 9.12% -5.33% -4.13%
Russell 3000 -0.51% -1.02% 11.17% 0.56% -1.93%
MSCI EAFE -0.28% -3.31% 10.86% -3.50% -13.33%
MSCI Emerging Markets -1.12% -5.18% 12.45% 0.78% -21.08%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.28% 0.45% 2.07% 3.89% 4.20%
Barclays Municipal 0.25% 0.56% 1.17% 2.99% 6.36%
Barclays US Corp High Yield 0.45% -0.49% 12.04% 6.88% -1.57%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 1.29% -1.22% 12.05% 7.63% -19.39%
S&P GSCI Crude Oil 4.71% 2.13% 46.98% 26.62% -23.69%
S&P GSCI Gold -1.50% -1.20% 2.87% 20.26% 4.57%
Source: MorningStar
Chart of the Week: Growth Typically Outpaces Value; Yet Sector Composition Plays a Key Role
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Historically speaking, the performance of the S&P 500 Growth Index outpaces the S&P 500 Value Index. According to S&P Global Market Intelligence, since 1989 the general tendency has been to say that value does best at the beginning of bull markets, while growth outperforms as the bull market matures. In the chart above, overlaying the relative strength chart of the S&P 500 Growth vs. Value Indices (growth divided by value) onto periods in which the S&P 500 suffered through corrections (declines of 10%-20%) and bear markets (declines >20%), we see that there has been a leaning toward value during the early period after the conclusion of bear markets, followed by a gravitation toward growth as the bull market matures and stumbles through corrections.

Interestingly, the relative strength line looks strikingly similar to the S&P 500 Technolgy Sector leading up to and subsequent to the bursting of the Tech Bubble of the late 1990s and early 2000s. What's more, the line also looks similar to that for the S&P 500 Financials sector before and after the financial crisis of late 2007-2009. Taking that thought further, could it be that the actions of the S&P 500 Growth vs. Value relative strength be largely explained by the relative performances of the S&P 500 Financials and Tech sectors? An S&P study of correlations suggests so.

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The correlation of monthly percent changes in both the growth/value and tech/financials relative strength calculations generates a coefficient of 73%, a pretty convincing result.

Weekly Vantage Point | Week of 5.9.2016

 
Equities Erode a Second Week

May 9, 2016 – Stocks extended declines into a second week on continued signs of slowing global growth. Predominately negative economic data weighed on investor sentiment last week, culminating in Friday's weak payrolls report. The U.S. economy added 160,000 new jobs in April, the fewest in seven weeks. While the S&P 500 rose 0.32% on Friday, with investors reasoning that sluggish job growth lessened the likelihood of a June Fed interest rate hike, the benchmark index has retreated 2.2% since its recent April 20 high. The MSCI Emerging Markets Index lost 4.1% last week as investors withdrew $1.3 billion out of ETFs that invest in stocks and bonds in developing markets, ending 11 weeks of net inflows.

In key economic data last week, the Institute for Supply Management's PMI readings of manufacturing activity slowed for a second month in April, while construction climbed to its highest level in eight years. ADP Research said private payrolls rose the least in three years as service jobs rose below trend and manufacturing jobs declined. Lastly, U.S factory orders were surprisingly higher for March, but not enough to erase a 4.2% drop from year-ago levels.

For the week, the S&P 500 fell 0.33%, extending its two-week decline to 1.65%; the Dow Industrials slipped 0.19%; and the NASDAQ Composite lost 0.74%. Five of the ten major sector groups finished lower last week, led by Energy (-2.95%), Materials (-1.97%) and Industrials (-1%). Consumer Staples (+1.74%) and Utilities (+0.88%) gained the most. The US dollar index gained 0.87% over the week, ending at 93.888, while gold futures rose 0.3%. Treasuries prices climbed higher for a second week, pulling the yield on 10-year Treasury notes down 5.4 basis points to end at 1.78%.

 
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Week’s Economic Calendar
 

Monday, May 9: Labor Market Conditions Index;

Tuesday, May 10: JOLTS, Wholesale Trade;

Wednesday, May 11: MBA Mortgage Applications;

Thursday, May 12: Jobless Claims, Import & Export Prices;

Friday, May 13: Retail Sales, Producer Prices, Business Inventories, Consumer Sentiment.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -0.19% -0.19% 9.48% 1.81% -0.57%
S&P 500 -0.33% -0.33% 10.04% 1.40% 1.08%
NASDAQ -0.74% -0.74% 8.91% -4.99% -2.50%
Russell 3000 -0.51% -0.51% 10.69% 1.08% -0.47%
MSCI EAFE -3.03% -3.03% 5.93% -3.23% -11.78%
MSCI Emerging Markets -4.11% -4.11% 9.37% 1.92% -20.66%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.17% 0.17% 1.95% 3.60% 3.78%
Barclays Municipal 0.31% 0.31% 1.21% 2.74% 6.03%
Barclays US Corp High Yield -0.94% -0.94% 9.36% 6.40% -1.98%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -2.40% -2.40% 10.39% 6.26% -20.09%
S&P GSCI Crude Oil -2.46% -2.46% 43.31% 20.93% -26.44%
S&P GSCI Gold 0.31% 0.31% 11.81% 22.10% 8.73%
Source: MorningStar
Chart of the Week: First Quarter GDP Not Great; See Downside Risks for Second Quarter
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The What We're Reading economic report on a slowdown in Chinese international trade, particularly imports, has attracted some negative headlines, but this largely reflects seasonal distortions. Specifically, distortions around the timing of China's weeklong Lunar New Year holiday and a slump in commoditiy prices a year earlier. In contrast, volume data show commodity demand remains firm.

Data published over the weekend show China's total imports fell by 10.9% year-over-year (YoY) in US dollar terms in April, compared with a drop of 7.6% in March. Import volumes of all the main commodities, save soybeans, dipped, however this followed a surge in imports in March (see Chart 1).

Soybeans imports surged for the second consecutive month, despite the recent uptick in prices. Soybean crushing margins in China are high in part due to rising pork prices. However, given the weak start to the year, soybeans imports are still only up by 12% YoY in January-April. Meanwhile, copper imports slipped back in April, but were still 5% higher than a year earlier. The recent strength in imports has coincided with an accumulation of exchange stocks in China, suggesting that physical demand has not been growing as strongly (see Chart 2).

Export volumes of steel and aluminium also slipped back last month, but that followed particularly strong overseas sales in March. Overall, the April import data point to solid Chinese commodity demand. Imports could slip in the next month or so as stocks may be drawn down but, according to Capital Economics, they expect the cyclical pick-up in Chinese economic activity to translate into higher commodity import demand for the year as a whole.

The Power of Compounding

Did you know that money saved today is more valuable than money saved tomorrow? That’s due to the amazing power of compounding. To determine how quickly your savings may double, simply divide 72 by your current annual rate of return for a rough estimate. For example, if you make a one-time investment of $7,500 today at an annual growth rate of 7.2%, based on the Rule of 72 (a simplified way to estimate how long an investment will take to double at a fixed annual rate), that one year of savings will potentially grow to:

After 10 years = $15,000
After 20 years = $30,000
After 30 years = $60,000
After 40 years = $120,000

That’s a compelling reason to begin saving early in life! Here’s another: a 40-year-old who begins saving $5,500 a year for retirement at a hypothetical 7.2% annual rate of return in a tax-deferred savings vehicle, like an IRA or 401(k), would accumulate $415,076 (vs. $312,914 in a taxable savings account) by age 65. A 25-year-old saving the same amount at the same growth rate would accumulate $1,328,204 (vs. $817,630 in a taxable savings account) by age 65. To reach the younger saver’s tax-deferred savings total, the 40-year-old would have to save about $17,600 a year—more than three times the annual savings amount of the investor who began saving at age 25.*

While the Rule of 72 is a reasonably accurate shortcut for estimating growth rates that fall between 6% and 10%; the higher the projected growth rate beyond 10%, the less accurate the calculation becomes. To calculate earnings growth rates above 10%, use an online compound interest calculator, or set up an appointment with PlanningWorks to discuss strategies for pursuing your long-term retirement savings goals. PlanningWorks can be reached at 512 498-7526 or info@planningworks.biz

Weekly Vantage Point | Week of 5.2.2016

 
Stocks Decline, Commodities Rally

May 2, 2016 – The largest two-day loss in nearly three months sealed the S&P 500 with a second weekly decline and capped the index with its weakest April performance since 2012, up just 0.39%. Stocks broadly declined Friday, hurt by continued US dollar weakness and mixed earnings reports. The US dollar fell to the lowest level in nearly a year as weak consumer spending and the slowest first quarter GDP growth pace in two years showed signs the world's largest economy is struggling to gain traction. The US dollar index fell 2.14% last week and lost 1.6% in April, its third straight monthly decline. On the bright side, a weaker US dollar boosts the appeal of commodities, which extended gains for their best month since 2010. Gold and silver prices rose to their highest levels since January 2015.

In key economic data last week, first quarter GDP growth slowed to 0.5%, down from its 1.4% pace during the fourth quarter. Consumer spending rose just 0.1% in March. New home sales contracted for a third month; durable goods orders rebounded by 0.8% in March from a 3.1% prior month decline; and home prices, in twenty major cities, climbed by 5.4% from a year earlier. Lastly, consumer confidence fell more-than-forecast in April.

For the week, the S&P 500 fell 1.24%; the Dow Industrials lost 1.28%; and the NASDAQ Composite slumped 2.65%. Six of the ten major sector groups ended negative last week, with Technology (-3.57%), Healthcare (-2.95%) and Financials (-1.24%) falling the most. Utilities (+2.88%) and Telecom (+1.14%) led among gainers. Oil prices rose 5% last week, ending at a fresh five-month high of $45.92/bbl. The US dollar index fell 0.7% on Friday, ending at 93.082; while the yen strengthened to 106.91 to the dollar, the strongest level since October 2014. The yen surged 5.1% last week. Treasuries prices climbed higher over the week, pulling the yield on 10-year Treasury notes down 5.5 basis points to end at 1.834%.

 
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Week’s Economic Calendar
 

Monday, May 2: ISM Mfg Index, Markit PMI Mfg Index, Construction Spending;

Tuesday, May 3: No major releases;

Wednesday, May 4: ADP Private Jobs, Trade Deficit, Productivity & Costs, Factory Orders, ISM Non-Mfg. Index, Markit PMI Services Index;

Thursday, May 5: Weekly Jobless Claims, Challenger Job Cuts Report;

Friday, May 6: Non-farm Payrolls, Consumer Credit.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -1.28% 0.50% 7.94% 2.00% -1.45%
S&P 500 -1.24% 0.39% 7.05% 1.74% 0.19%
NASDAQ -2.65% -1.89% 3.84% -4.27% -3.78%
Russell 3000 -1.24% 0.62% 7.67% 1.59% -1.29%
MSCI EAFE -0.44% 2.90% 7.58% -0.20% -9.98%
MSCI Emerging Markets -0.57% 0.54% 13.66% 6.29% -18.73%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.40% 0.38% 2.02% 3.43% 2.65%
Barclays Municipal 0.19% 0.74% 1.21% 2.42% 5.10%
Barclays US Corp High Yield 0.76% 3.42% 9.15% 7.40% -1.11%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 2.97% 8.51% 10.83% 8.96% -16.87%
S&P GSCI Crude Oil 5.01% 19.77% 36.59% 23.97% -21.57%
S&P GSCI Gold 4.92% 4.44% 15.59% 21.72% 6.64%
Source: MorningStar
Chart of the Week: First Quarter GDP Not Great; See Downside Risks for Second Quarter
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Real GDP increased at a meager 0.5% annualized pace in first quarter this year, and according to JPMorgan, new economic data recently received pose downside risks to an outlook for 2.0% growth in the second quarter. Weak 1Q growth has been followed by a 2Q bounce for the past two years, and we think that a similar pattern will play out again this year. However, this forecast depends heavily on a sharp improvement in the April growth indicators to be released over the next few weeks. As this chart illustrates, the major downside surprise in the data lately is the slowdown in real consumer spending against the background of solid income growth. Thus, market analysts will be keenly interested in whether April retail sales due out May 13th include a bounce in core retail sales, alongside an expected bounce in auto sales.

The April FOMC statement toned down the concerns expressed in the prior statement about global and financial developments, but also signaled no rush to get on with the second rate hike. Economists' current consensus forecast looks for rate hikes at the July and December meetings. But to get a hike by July, we will need to see evidence that growth is accelerating decisively by June.

Weekly Vantage Point | Week of 4.25.2016

 
Energy Leads, Technology Bleeds

April 25, 2016 – U.S. equity markets ended mixed on Friday, as disappointing earnings from technology and internet companies drove the NASDAQ 100 Index to its largest weekly decline since February 5th. While earnings for S&P 500 companies are so far surpassing analysts' consensus forecasts by an average of 4%, first quarter results from many mega-cap tech stocks have weighed negatively on the broader market. The NASDAQ 100 Index, representing performance of the 100 largest non-financial and international stocks listed on NASDAQ, fell 1.51% last week. The S&P 500 gained modestly last week, ending slightly below the 2,100 level it reached on Wednesday, a level it has crossed 40 times since the start of 2015. Of the 130 S&P 500 member companies to so far report results, 82% have exceeded their earnings estimates, while 59% have topped sales forecasts.

In key economic data last week, homebuilders broke ground on fewer new homes in March, dropping to the lowest level since October, while building permits fell to fewest in a year. Spring home sales quickened, reaffirming market strength, with existing home sales topping economists' projections in March. Over the past year, used single-family home sales are up 2.6%, while multi-family units are down 6.6%. Manufacturing data however, continues to be challenging and raises concerns about a potential second quarter rebound. The Philadelphia Fed manufacturing survey index disappointed in April, slipping into contraction this month following a gain in March.

For the week, the S&P 500 gained 0.53%, the Dow Industrials rose 0.59% and finished the week above the 18,000 level for the first time this year, while the NASDAQ Composite fell 0.65%. Five of the ten major sector groups posted gains last week, led by Energy (+5.21%), Financials (+2.79%) and Healthcare (+2.61%). Utilities (-3.24%), Consumer Staples (-2.08%) and Technology (-2.04%) fell the most. Oil prices rose 4.84% last week, ending at a five-month high of $43.73/bbl. The International Energy Agency re-confirmed their forecast this week that non-OPEC oil production will decline by around 700,000 barrels a day this year. The US Dollar Index ended at 95.116 on Friday, up 0.44% on the week, while the Bloomberg Commodities Index gained 3.31%. Treasuries prices declined a second week as equities continued to rally, pushing the yield on 10-year Treasury notes up 13.6 basis points to end at 1.889%.

 
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Week’s Economic Calendar
 

Monday, April 25: New Home Sales, Dallas Fed Manufacturing Survey;

Tuesday, April 26: FOMC Meeting Begins, Durable Goods Orders, S&P Case-Shiller Home Prices, Consumer Confidence;

Wednesday, April 27: U.S. Trade Deficit, Pending Home Sales, FOMC Decisions;

Thursday, April 28: Advance 1Q GDP, Weekly Jobless Claims;

Friday, April 29: Personal Income & Outlays, Employment Costs, Chicago PMI, Consumer Sentiment.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 0.59% 1.80% 11.87% 3.32% -0.19%
S&P 500 0.53% 1.65% 10.31% 3.02% 1.42%
NASDAQ -0.65% 0.78% 7.22% -1.66% -1.37%
Russell 3000 0.66% 1.88% 10.85% 2.86% -0.31%
MSCI EAFE 1.30% 1.88% 10.85% 2.86% -0.31%
MSCI Emerging Markets -0.14% 1.12% 19.43% 6.89% -17.30%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.43% -0.02% 2.14% 3.02% 1.95%
Barclays Municipal -0.11% 0.54% 1.24% 2.22% 4.64%
Barclays US Corp High Yield 1.10% 3.13% 9.56% 6.59% -1.88%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 3.31% 5.38% 10.47% 5.82% -17.33%
S&P GSCI Crude Oil 4.84% 14.06% 35.85% 18.06% -22.09%
S&P GSCI Gold -0.37% -0.45% 12.20% 16.02% 3.62%
Source: MorningStar
Chart of the Week: Bullish Oil Outlook Still Intact Amid Constrained Supply & Recovering Demand
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Source: Capital Economics, Bloomberg

Oil prices dipped at the start of the week due to the failure to agree on an output freeze in Doha, Qatar on Sunday, April 17th. However, prices quickly rebounded and have continued to surge to their highest level this year (see Chart 1 above). This rebound was partly due to a short labor strike in Kuwait, which temporarily cut oil production by about 2 million barrels/day, but also an improvement in sentiment towards commodities in general. Comments from Saudi Arabia, made prior to the failure of the Doha meeting, that the country could ramp up its oil production were probably political grandstanding rather than a legitimate threat to flood the market, even though the country has more than enough spare capacity (see Chart 2, the line above the blue production level).

The recovery in oil prices has now taken Brent Oil above Capital Economics' 2016 year-end forecast of $45 per barrel. Therefore, it would not be surprising to see the rally pause for breath soon, but remains comfortable with their view that prices will recover further - to around $60 per barrel - by the end of 2017. Furthermore, the recovery is consistent with the big picture of constrained supply, recovering demand and improving sentiment that is expected to lift many commodity prices over the coming years. This is good news for equities, especially in emerging markets (EMs), but also carries risks for bond investors and US dollar bears. So far, U.S. inflation expectations have remained relatively subdued, but this may not last as oil continues to trend higher, creating a less dovish assessment for Fed interest rates, and thus vulnerability for the bond markets, especially Treasuries. However, this reassessment could also put renewed upward pressure on the US dollar against other major currencies, which is one potential catalyst for a temporary correction in commodity prices.

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