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Weekly Vantage Point | 1.11.16

 
Worst Start to a Year on Record

January 11, 2016 – Optimism over Friday's better-than-forecast jobs report gave way to anxiety over sliding oil prices, global growth concerns and the timing of future Federal Reserve rate increases. The S&P 500 fell 1.08% on Friday, capping the week with a near 6% loss, its worst five-day start to a year on record. The week began with a weak PMI manufacturing reading out of China, sending the nation's Shanghai Composite down nearly 7%. Also last week, the People's Bank of China devalued its currency, sending the yuan down the most since its August 25 devaluation last year. Also contributing to investor angst, North Korea conducted a nuclear weapons test, claiming a successful detonation of its first hydrogen bomb. The Shanghai Composite slid 10% for the week, while the MSCI Emerging Market Index sank 6.81%. Europe's Stoxx 600 Index fell 6.69%, its worst weekly loss in four years.

In key economic data last week, December non-farm payrolls climbed by 292,000, topping economists' consensus forecast by 92,000, while revisions on the prior two months added another 50,000. The unemployment rate was unchanged at 5%. Wage growth was also unchanged in December, while full-year wages rose 0.2% to 2.5%. Other key readings showed U.S. manufacturing activity contracted to its lowest level since July 2009. The U.S. trade deficit narrowed more than expected in November as imports fell to the lowest level since early 2011, a third month of import declines. Exports also contracted in November, falling to the lowest level since January 2012.

For the week, the S&P 500 fell 5.91%, finishing at 1,922, its lowest level since September 30th. The Dow Jones Industrial Average shed 1,078-points, ending the week down 6.19%. The NASDAQ Composite tumbled 7.24%. All ten major sector groups ended in negative territory, with Materials (-7.78%), Financials (-7.39%) and Technology (-6.97%) falling the most. Utilities (-0.40%) fell the least. Gold futures rose by $42.63 last week to $1,104.05/oz., while West Texas Intermediate (WTI) crude fell $3.88 to $33.16 per barrel, a 12-year low. Treasury prices rallied on safer-haven buying, with the yield on benchmark 10-year Treasury notes falling by 15.4 basis points over the week to end at 2.116%.

 
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Week’s Economic Calendar
 

Monday, January 11: No major releases;

Tuesday, January 12: Job Openings and Labor Turnover Survey (JOLTS);

Wednesday, January 13: MBA Mortgage Activity, Fed Beige Book;

Thursday, January 14: Jobless Claims, Import/Export Prices;

Friday, January 15: Producer Price Index, Retail Sales, Empire State Mfg., Industrial Production, Business Inventories, Consumer Sentiment.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -6.19% -6.19% -4.13% -6.19% -8.72%
S&P 500 -5.91% -5.91% -4.01% -5.91% -4.81%
NASDAQ -7.24% -7.24% -3.18% -7.24% -0.81%
Russell 3000 -6.13% -6.13% -4.99% -6.13% -5.81%
MSCI EAFE -6.14% -6.14% -6.79% -6.14% -4.71%
MSCI Emerging Markets -6.81% -6.80% -12.45% -6.80% -20.94%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.64% 0.64% 0.08% 0.64% 0.52%
Barclays Municipal 0.86% 0.86% 2.30% 0.86% 3.55%
Barclays US Corp High Yield -0.29% -0.29% -3.88% -0.29% -4.85%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -2.33% -2.33% -15.04% -2.33% -25.94%
S&P GSCI Crude Oil -9.85% -9.85 -32.76% -9.85% -31.71%
S&P GSCI Gold 3.57% 3.57% -4.04% 3.57% -9.16%
Source: MorningStar
Chart of the Week: S&P 500 Dividend Payments Set a Record in 2015, Another Record Likely for 2016
chart
View larger image »
 

 

On an overall basis, S&P 500 companies paid out 10% more in regular cash dividends in 2015 than in 2014, according to S&P Dow Jones Indices calculations. It was the fifth consecutive year of double-digit increases and the fourth record year for payments. From a quarterly perspective, payments for the fourth quarter of 2015 set a record, the seventh in a row. However, the quarter, with $3.6B in dividend net increases, showed a massive deceleration from the $12B increase registered during the fourth quarter of 2014. Energy issues accounted for 48% of the dividend cuts and 80% of the dollar cuts in this year's fourth quarter.

As this preceding chart illustrates, when reviewing the entire U.S. common stock universe (and not just the S&P 500), 755 dividend increases were reported during the fourth quarter of 2015, down from 971 increases reported during the fourth quarter of 2014, a 22.2% decrease. For all of 2015, 2,810 issues increased their payments, down from the 3,308 issues that increased their payments during 2014, a 15.1% decrease. Meanwhile, 142 companies decreased their dividends in the fourth quarters of 2015 (defined as either a decrease or a suspension) compared with 67 in the fourth quarter of 2014, a 112% difference. For all of 2015, 504 issues decreased their dividend payments, a large jump from 291 decreases in 2014, a 73.2% increase.

S&P Dow Jones Indices see two possible scenarios for 2016. On the pessimistic side, commodities would continue down as U.S. economic growth slows, and earnings would falter with a 0.75% (maximum) 2016 Fed increase—leaving dividend growth in the 3% area for 2016. On the optimistic side, oil and commodities would rebound slightly over the year (gyrating), and the economy would adjust to the Fed increase (1%-1.25%), inflation would pick up, especially in the second half of the year, consumers (though still selective) would spend more, and earnings would increase by low double-digits allowing dividends to increase roughly 8%-9% for 2016.

 
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The Barclays U.S. Aggregate bond Index is an unmanaged index composed of Barclays Credit government bond index, mortgage backed securities index, and asset backed securities index and is generally representative of the US Bond market.

The Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt.

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The Bloomberg Commodity Index is a broadly diversified index that allows investors to track commodity futures through a single, simple measure. It is composed of futures contracts on physical commodities and is designed to minimize concentration in any one commodity or sector. It currently includes 19 commodity futures in five groups. No one commodity can comprise less than 2% or more than 15% of the index, and no group can represent more than 33% of the index (as of the annual reweightings of the components).

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CRB Index: A pricing index that measures changes in the price of 22 commodities that are believed to be among the first to react to changes in economic conditions.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.

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