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Weekly Vantage Point | 2.1.16

 
Stocks Extend Gains a Second Week

February 1, 2016 – The S&P 500 surged 2.5% last Friday, its best one-day gain in more than four months, as investors cheered Japan's surprise new stimulus measure and better-than-forecast manufacturing data in the Chicago area. The Bank of Japan said it will encourage banks to lend by imposing a negative 0.1% interest rate on certain excess cash holdings. This first time move is also expected to weaken the yen and boost inflation. Wall Street sentiment also improved after a slightly weaker-than-forecast gross domestic product (GDP) report suggested the Federal Reserve may slow its pace of further interest rate hikes this year. In the first of three government GDP estimates, fourth quarter growth cooled to a 0.7% annualized rate—down from a final 2% pace the prior quarter. Although not yet final, 2015 U.S. GDP real growth expanded by 2.4%, the same pace as in 2014. Further GDP revisions are due out in February and March when more information becomes available.

In other economic data from last week, separate consumer sentiment index readings from the Conference Board and the University of Michigan showed somewhat divergent results. Yet, both shared a common theme that current consumer views remain resilient, defying pressure from overseas weakness. Pending used home sales edged only slightly higher in December, following a downwardly revised 1.1% decline in November. Economists noted that recent delays in contract closings are due to new mortgage documentation rules, which were implemented in November.

For the week, the S&P 500 rose 1.77%, its second weekly gain in 2016, trimming its year-to-date (and worst 10-day start to a year) loss to 4.96%. Since its 1,812 intra-day low on January 20, the benchmark equity index has rallied more than 7%. The Dow Jones Industrial Average gained nearly 373 points, representing a 2.32% gain for the week. The NASDAQ Composite trailed with a 0.51% increase. Nine of the ten major sector groups advanced last week, led by Telecom (+4.32%), Energy (+4.26%) and Utilities (+3.69%). Materials (+0.70%) rose the least, while Healthcare (-1.86%) lagged. West Texas Intermediate (WTI) crude oil rebounded further, gaining $1.43 over the week to close at $33.62/barrel. Treasury prices climbed, pulling the yield on 10-year Treasury notes down 13.1 basis points over the week, ending at 1.922%.

 
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Week’s Economic Calendar
 

Monday, February 1: Personal Income & Outlays, ISM Mfg., Markit U.S. PMI Mfg

Tuesday, February 2: No major releases;

Wednesday, February 3: ADP Private Sector Employment, ISM Non-Mfg., Markit U.S. Services;

Thursday, February 4: Jobless Claims, Labor Productivity & Costs, Factory Orders;

Friday, February 5: January Non-farm Payrolls & Unemployment Rate, International Trade.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 2.32% -5.50% -7.26% -5.50% -5.46%
S&P 500 1.77% -4.96% -6.63% -4.96% -1.96%
NASDAQ 0.51% -7.82% -8.79% -7.82% -0.33%
Russell 3000 1.68% -5.64% -7.45% -5.64% -3.80%
MSCI EAFE 1.50% -7.23% -9.28% -7.23% -8.92%
MSCI Emerging Markets 4.48% -6.49% -11.96% -6.49% -21.86%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.52% 1.38% 0.89% 1.38% 0.17%
Barclays Municipal 0.22% 1.19% 2.33% 1.19% 2.84%
Barclays US Corp High Yield 1.14% -1.61% -6.22% -1.61% -6.61%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 2.65% -1.68% -11.06% -1.68% -21.76%
S&P GSCI Crude Oil 4.44% -9.23 -27.01% -9.23% -24.51%
S&P GSCI Gold 1.83% 5.30% -2.69% 5.30% -11.11%
Source: MorningStar
Chart of the Week: December New Home Sales Jumped to 10-Month High; Fourth Quarter Sales Up 15.3%
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View larger image »
 

 

New home sales soared 10.8% in December, the most since August 2014, to a 544,000 annualized pace. These figures, which were reported by the U.S. Census Bureau and Department of Housing and Urban Development on January 27, 2016, included upward revisions to prior months that leave new home sales for the quarter up a solid 15.3% on a seasonally-adjusted annualized basis. JPMorgan's latest forecast looks for continued gains in housing starts, based partly on the strong upturn in housing permits in the fourth quarter of 2015. The reported increase in new home sales provides important demand-side support for this forecast (see preceding chart).

Nevertheless, a separate reading from the Census Bureau on Housing Vacancies and Homeownership provided mixed takeaways for the housing market. The data showed the number of households grew by only 0.4% in 2015. The report also shows the beginnings of a recovery in the homeownership rate. The rate had declined from a seasonally-adjusted peak of 69.4% in the second quarter 2004 to a multi-decade low of 63.5% in second quarter 2015 before edging up in each of the past two quarters to 63.7%. If sustained, the rise in homeownership would support the market for single-family homes.

 
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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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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.

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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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