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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
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. 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.

The MSCI ACWI is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. The developed market country indexes included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indexes included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

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The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI and provides investors with a publicly available benchmark for investment performance in the crude oil market.

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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