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Weekly Vantage Point | Week of 3.21.2016

Dow and S&P 500 Turn Positive Year-to-Date

March 21, 2016 – Stocks advanced on Friday, pushing all three major U.S. equity indices to a fifth straight weekly gain, their longest stretch of gains in five months. The Dow Jones Industrial Average and S&P 500 each completed one of the largest turnarounds in market history, erasing all losses incurred during the worst start to a year on record. Emerging from its first correction in four years, the S&P 500 capped a 12.34% rally from its February 11 low, ending the week with a 0.28% YTD gain. The Dow Industrials likewise returned to plus column for 2016, finishing the week up 1.02% YTD. The NASDAQ Composite remains lower for the year, down 4.23%. For a second week, central bank actions supported equities, with Federal Reserve policymakers voting 9-to-1 to leave the Fed Funds interest rate unchanged at the 0.25-0.50%. Signaling a dovish outlook, Fed Chair Janet Yellen announced that the Fed reduced its year-end rate forecast to 0.875%, implying two quarter-point rate hikes in 2016, down from four increases previously estimated.

In other economic data last week, retail sales fell 0.1% in February, while sales excluding autos and gas rose 0.3%. Somewhat similarly, overall consumer prices contracted 0.2% last month, while core prices, excluding volatile food and energy prices, increased by 0.3%. Housing starts rebounded in February, up 5.2% to a 1.178 million annualized rate. The Philadelphia Fed's key manufacturing conditions survey index was strongly higher, jumping into positive territory, signaling the worst may be over for the factory sector.

For the week, the S&P 500 gained 1.37%, the Dow Jones Industrial Average advanced 2.26% and the NASDAQ Composite rose 1.02%. Nine of the ten major sectors posted gains on the week, led by Industrials (+3.41%), Energy (+2.48%) and Materials (+2.42%). Consumer Staples (+0.82%) gained the least, while weakness in biotechnology shares hurt Healthcare (-2.01%). West Texas Intermediate (WTI) crude oil futures rose for a fifth week, gaining 2.44% to finish at $39.44/barrel. Gold futures climbed last week, gaining 0.37% to $1,255.32/oz. Treasuries rebounded, pulling the yield on 10-year Treasury notes down 11.1 basis points to 1.874%.

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Week’s Economic Calendar

Monday, March 21: Chicago Fed National Activity Index, Existing Home Sales;

Tuesday, March 22: PMI Manufacturing, Richmond Fed Manufacturing;

Wednesday, March 23: New Home Sales, MBA Mortgage Applications;

Thursday, March 24: Jobless Claims, Durable Goods Orders;

Friday, March 25: Markets Closed for Good Friday Holiday; Final 4Q GDP.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 2.26% 6.57% 2.77% 1.02% -2.62%
S&P 500 1.37% 6.21% 2.79% 0.80% -0.24%
NASDAQ 1.02% 5.28% -2.27% -3.94% -2.58%
Russell 3000 1.37% 6.33% 2.23% 0.30% -2.20%
MSCI EAFE 1.01% 6.77% -1.03% -2.76% -7.58%
MSCI Emerging Markets 3.27% 11.79% 5.15% 4.37% -11.43%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.77% 0.33% 2.16% 2.43% 1.59%
Barclays Municipal 0.21% -0.17% 1.31% 1.18% 3.73%
Barclays US Corp High Yield 1.04% 4.84% 4.80% 3.74% -2.50%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 1.02% 6.35% 4.34% 2.86% -17.62%
S&P GSCI Crude Oil 2.62% 21.90% 14.09% 11.07% -11.79%
S&P GSCI Gold -0.41% 1.71% 17.89% 18.42% 8.97%
Source: Morningstar
Chart of the Week: March Manufacturing See Solid Start; Importantly, Led by New Orders
View larger image »

The first two regional manufacturing surveys to report March data strengthened significantly during the month, turning positive for the first time this year. The headline level for the New York Fed's Empire State manufacturing survey surged 17-points to 0.62 in March, while the Philadelphia Fed's manufacturing survey leapt 15-points to 12.4. Perhaps more importantly, both surveys showed large increases for their measures of New Orders (seasonally-adjusted; see Figure 1 above). Impressively, New Orders on the Philadelphia Fed's survey rose to a positive 15.7 from negative 5.3 in February, as reported by Bloomberg. This is its first positive reading since September 2015.

A number of other manufacturing surveys will provide March data in the coming weeks, but the improvement in the two available to date signals that we are moving past the recent run of manufacturing weakness. It is likely that the largest drags from the stronger dollar and inventory correction may now be behind us.

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