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Weekly Vantage Point | 10.26.15

S&P 500 Returns to Positive YTD Performance

October 26, 2015 – U.S. stocks posted sharp gains on Thursday and Friday, capping the S&P 500 with its fourth straight weekly advance and finished near a two-month high. The gains helped erase the benchmark equity index's YTD loss that had reached nearly 10% on August 25, rallying 11% since the late-summer low. The past week's advance was largely driven by overseas central bank actions. On Thursday, the European Central Bank signaled that it will likely boost and extend its bond-buying stimulus program in December, while, on Friday, China's central bank unexpectedly cut interest rates across the board. The People's Bank of China (PBOC) cut their key one-year lending rate by ¼–point to 4.35% as well as reducing their one-year deposit rate to 1.5% from 1.75%. The PBOC issued a statement saying that while their economy faces downward pressure, they will step up to support weak spots in China's economy.

Investors also welcomed better-than-forecast earnings reports in technology and industrial shares. Internet and software stocks have been the strongest contributors to the rebound from the August selloff. Among key domestic economic data last week, housing starts jumped 6.5% last month, led by an 18.3% increase in multi-unit construction, while single-family starts rose just 0.3%. A preliminary PMI reading of U.S. manufacturing perked up, rising one-point to 54 for October, a five-month high.

For the week, the S&P 500 advanced 2.09%, ending above its 200-day moving average and within just 2.6% of its all-time high. The Dow Jones Industrial Average added 2.50% and the NASDAQ Composite surged 2.97%. Eight of the ten major sector groups posted gains, led by Technology (+4.61%), Industrials (+3.87%) and Financials (+2.51%). Energy (-0.99%) and Utilities (-0.47%) lagged. The US dollar index rose 0.76% on Friday to 97.112, capping a seventh daily gain, its longest rally in ten months. Treasuries fell, pushing the yield on 10-year Treasuries to a two-week high, up 5.4 basis points on the week to end at 2.088%.

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Words of Wisdom

"I don't struggle to find the needle in the haystack; I just buy the haystack."

Jack Bogle

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
DOW 2.50% 8.36% -0.48% -0.99% 5.81%
S&P 500 2.09% 8.19% -0.75% 2.47% 8.61%
NASDAQ 2.97% 8.95% -1.94% 7.19% 14.32%
Russell 3000 1.73% 7.66% -1.66% 1.80% 7.96%
MSCI EAFE 0.83% 8.14% -4.75% 2.44% 2.60%
MSCI Emerging Markets 0.39% 9.74% -5.43% -7.24% -9.37%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.09% 0.34% 1.19% 1.47% 2.07%
Barclays Municipal 0.01% 0.25% 1.32% 2.02% 2.69%
Barclays US Corp High Yield 0.61% 2.84% -1.27% 0.31% -1.76%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -2.60% -0.43% -7.34% -16.16% -25.41%
S&P GSCI Crude Oil -6.54% -1.09% -7.95% -16.28% -45.69%
S&P GSCI Gold -1.72% 4.27% 6.18% -1.80% -5.40%
Source: MorningStar
World Growth Outlook Set to Improve
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Home Buyers Still Face Obstacles

According to Franklin Templeton, all eyes are now focused on the corporate earnings season, with a number of observers fearful that while cost-cutting and productivity gains for much of corporate America have been boosting profitability for some time, top-line revenues are declining, at least for energy-related companies (which have been hit by weak commodity prices) and for exporters (hit by weakening growth in emerging markets and a strengthening U.S. dollar). Prospects for U.S. exporters have certainly dimmed, with statistics showing that the U.S. trade deficit jumped sharply in August due to a drop in the export of goods to their lowest level since June 2011 and a rise in imports.

A faltering manufacturing and export sector on the one hand, and continued expansion of services thanks to strong US consumer spending on the other, offers a contrasting vision of prospects for the U.S. economy, and GDP growth for the third quarter is set to be markedly lower than in the second. But since consumer spending accounts for about 70% of US GDP, we believe the U.S. economy should be able to withstand global headwinds.

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Week's Economic Calendar

Monday, October 26: New Home Sales, Dallas Fed Mfg Survey;

Tuesday, October 27: FOMC Meeting Begins, Durable Goods Orders, S&P/Case-Shiller Home Prices and Consumer Confidence;

Wednesday, October 28: Weekly Mortgage Applications, FOMC Rate & Policy Decisions (2 pm ET);

Thursday, October 29: 1st of 3 Third Quarter GDP Estimate, Jobless Claims, Pending Home Sales;

Friday, October 30: Personal Incomes & Outlays, Labor Costs, Chicago PMI, Consumer Sentiment.

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Weekly Trivia

Today: Lake Superior has a maximum depth of 1,332 ft and holds three-quadrillion gallons, enough to cover North and South America with one foot of water. Its total water volume is equal to all the water in the other Great Lakes combined plus how may more Lake Eries?

  • One,
  • Three
  • Five or
  • Ten?

Last Week: In China, animals are forbidden to use human language. This belief led to the ban of which book and which famous writer in that country?

Answer: Lewis Carroll's "Alice's Adventures in Wonderland."

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