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Weekly Vantage Point | 1.25.16

 
First Weekly Gain in 2016

January 25, 2016 – U.S. stocks surged on Friday, capping the S&P 500 with its best two-day rally in three months on speculation that central banks in Europe and China may expand stimulus measures to support their respective economies. Recovering from a new 12-year low of $26.55/barrel on Wednesday, West Texas Intermediate (WTI) oil prices likewise rallied—gaining $3.84 over the past two days—posting the strongest back-to-back oil gains since 2009. Investors drew relief following comments from European Central Bank President Mario Draghi that policymakers may increase stimulus in March, while China's Vice President Li Yuanchao pledged action to limit market volatility. Earlier in the week, China reported fourth quarter GDP growth of 6.8%, capping 2015 with the slowest annual growth in 25 years, prompting widely-held views for further central bank easing. The U.S. joined a global rally on Friday, helping push the MSCI All Country World Index (ACWI) to rebound nearly 2.7%, capping the week with almost a 1% gain.

In key economic data last week, U.S. homebuilder confidence edged lower in January, reflecting a slowdown in traffic among first-time buyers. The consumer price index (CPI) slipped 0.1% in December, trimming the headline inflation increase last year to 0.7%. The so-called core CPI, which excludes volatile food and energy prices, crept 0.1% higher last month, up 2.1% for the year. New claims for unemployment benefits increased to a six-month high, while the Federal Reserve Bank of Philadelphia's manufacturing survey activity index improved in January, yet remained negative for a fifth month.

For the holiday-shortened trading week, the S&P 500 rose 1.43%, its first weekly gain in 2016, and trimming its year-to-date (YTD) loss to 6.61%. The Dow Jones Industrial Average finished the week up 105 points, representing a 0.66% gain. The NASDAQ Composite performed best last week, gaining 2.29%. Eight of the ten major sector groups had gains last week, with Telecom (+4.38%), Consumer Discretionary (+2.52%) and Information Technology (+2.42%) gaining the most. Financials (-0.52%) and Utilities (-0.04%) were down. On Friday, WTI crude oil surged over 9% to close at $32.19/barrel capping the week with a $2.91/barrel gain, up 9.9%. Treasury prices edged lower, lifting the yield on 10-year Treasury notes up 1.7 basis points over the week, ending at 2.053%.

 
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Week’s Economic Calendar
 

Monday, January 25: Dallas Fed Mfg Survey;

Tuesday, January 26: FOMC meeting begins, S&P/Case-Shiller Home Price Index, Consumer Sentiment;

Wednesday, January 27: New Home Sales, FOMC Policy Decisions (2 pm ET);

Thursday, January 28: Jobless Claims, Durable Goods Orders, Pending Home Sales;

Friday, January 29: 4Q GDP early estimate, Labor Costs, Chicago PMI, Consumer Confidence.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 0.66% -7.64% -7.98% -7.64% -9.66%
S&P 500 1.43% -6.61% -6.59% -6.61% -5.60%
NASDAQ 2.29% -8.29% -6.40% -8.29% -2.23%
Russell 3000 1.37% -7.20% -7.45% -7.20% -6.98%
MSCI EAFE 0.21% -8.60% -10.61% -8.60% -9.64%
MSCI Emerging Markets 0.21% -10.49% -16.91% -10.48% -25.99%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.12% 0.86% -0.27% 0.86% 0.25%
Barclays Municipal 0.04% 0.97% 2.15% 0.97% 0.97%
Barclays US Corp High Yield 0.12% -2.71% -7.09% -2.71% -7.24%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 2.38% -4.22% -14.63% -4.22% -25.90%
S&P GSCI Crude Oil 5.92% -13.09 -29.07% -13.09% -30.51%
S&P GSCI Gold 0.50% 3.41% -5.99% 3.41% -15.79%
Source: MorningStar
Chart of the Week: Emerging Market Investment Funds Begin to Trend Notably Lower Trend Snaps a 30 Year Run
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View larger image »
 

 

According to data released from the Institute for International Finance (IIF), a net total of $735 billion has been withdrawn from emerging markets in 2015, following $111 billion in outflows in 2014 (see chart above). Last year's total far exceeded the IIF's estimate for $540 billion worth of outflows, illustrating just how quickly sentiment eroded in the year's final months.

Unsurprisingly, much of money running for the exits occurred in China, where increasingly slow growth radically reshaped investor expectations over the last year. The IIF estimates that some $676 billion of net capital-both officially and through unrecorded channels-fled the People's Republic last year. The chart helps explain why emerging market currencies such as China's yuan, Russia's ruble and Brazilian real are so weak. Likewise, it also helps explain why the US dollar is strong - and why U.S. Treasury prices are so well supported.

 
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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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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.

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West Texas Intermediate (WTI) is a crude oil stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing a number of other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.

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