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Weekly Vantage Point | Week of 4.11.2016

Stocks Weaken Most in Two Months

April 11, 2016 – The S&P 500 posted tepid gains on Friday, trimming three days of declines last week and capping the worst weekly slide in two months. Notably, the benchmark equity index experienced three consecutive days of moves of 1% or more last week,ending a 15-day stretch of relative calm, the longest such period since March 2015. Last week's pullback leaves the S&P 500 with just a modest 0.81% year-to-date gain. That is little cushion ahead of what analysts predict will be among the worst of quarterly earnings reporting seasons since the financial crisis. Around 9% of S&P 500 companies are expected to post quarterly results this week, with analysts initial forecasts projecting overall negative earnings growth of nearly 9% year-over-year.

Among key domestic economic data last week, factory orders fell 1.7% in February, following a downwardly revised 1.2% gain in January, while durable goods orders slumped 3%. On a brighter note, the Institute for Supply Management (ISM) Non-Manufacturing Index and Markit Economics' Services Purchasing Managers' Index (PMI) both posted gains for March. Mortgage applications activity rebounded and jobless claims declined. Wrapping up the week, Commerce officials reported wholesale inventories fell 0.5% in February, the steepest decline since May 2013.

For the week, the S&P 500 fell 1.15%, the Dow Industrials lost 1.21% and the NASDAQ Composite declined 1.27%. Eight of the ten major sector groups ended lower last week, with Financials (-2.82%), Consumer Discretionary (-2.03%) and Utilities (-1.97%) falling the most. Energy (+2.20%) and Healthcare (+0.90%) outperformed. Oil prices surged 8% last week after the Energy Department said U.S. oil production fell for the 10th time in 11 weeks, while crude inventories declined. The US dollar index fell 0.406% to 94.235, while the Bloomberg Commodities Index gained 1.4%. Treasuries rallied over the week, with the yield on 10-year Treasury notes declining by 5.3 basis points to end at 1.718%.

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Week’s Economic Calendar

Monday, April 11: No major releases;

Tuesday, April 12: Small Business Confidence, Import & Export Prices;

Wednesday, April 13: Retail Sales, Producer Prices, Business Inventories, Fed Beige Book;

Thursday, April 14: Consumer Prices, Jobless Claims;

Friday, April 15: Empire State Manufacturing, Industrial Production, Consumer Sentiment.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -1.21% -0.61% 7.53% 0.87% 6.35%
S&P 500 -1.15% -0.53% 7.14% 0.81% 0.51%
NASDAQ -1.27% -0.36% 4.81% -2.78% -0.83%
Russell 3000 -1.19% -0.61% 6.91% 0.36% -1.68%
MSCI EAFE 0.65% -1.50% 1.79% -4.46% -11.80%
MSCI Emerging Markets -1.09% -2.34% 10.77% 3.24% -17.98%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.38% 0.33% 2.72% 3.38% 1.99%
Barclays Municipal 0.55% 0.61% 1.42% 2.29% 4.51%
Barclays US Corp High Yield 0.45% 0.44% 4.12% 3.81% -3.98%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 1.40% 0.26% 3.08% 0.68% -20.21%
S&P GSCI Crude Oil 9.34% 4.92% 20.47% 8.61% -20.63%
S&P GSCI Gold 1.66% 0.66% 13.27% 17.32% 3.38%
Source: MorningStar
Chart of the Week: Weak 1Q GDP Outlook: Seasonal Trend, Not Systemic
View larger image »

First-quarter economic data has continued to come in weak, prompting JPMorgan to revise its 1Q 2016 seasonally-adjusted real GDP forecast to only 0.2% on an annualized basis (down from 1.2% two weeks ago and 2.0% the week before that). Through this multi-year recovery, real GDP growth has tended to be weak in the first quarter and stronger in the second quarter, and subpar 1Q16 growth continues this pattern. Average real GDP growth in the first quarter of the six years 2010-2015 has averaged only 0.8%, while average growth in the second quarters averaged 3.1%.

Therefore, JPMorgan believes the pattern of weak first quarters is a coincidence rather than a systemic seasonal adjustment problem. They forecast the pattern of stronger 2Q16 growth to hold again this year, projecting 2.0% growth in the second quarter of 2016 and 2.25% during the second half of the year. As the chart above shows, this past week's PMI services survey, for example, posted a 51.3 reading for business activity, below its 52.4 average for the prior three months. The ISM non-manufacturing measure of activity rebounded to 59.8, 2.7-points above its average for the prior three months.

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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.

The Barclays U.S. Municipal Bond Index is an unmanaged, market-value-weighted index of investment-grade municipal bonds with maturities of one year or more.

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).

The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility.

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 EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

MSCI Emerging Markets is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.

The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.

The Russell 1000 Index comprises the 1,000 largest companies in the U.S. equity market, and is a subset of the Russell 3000 Index. The Russell 1000 is a market capitalization-weighted index, meaning that the largest companies constitute the largest percentages in the index, affecting performance more than the smallest index members. The inception date for the Russell 1000 and 3000 indices was January 1, 1984.

The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.

The S&P Composite 1500® combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the U.S. market capitalization. It is designed for investors seeking to replicate the performance of the U.S. equity market or benchmark against a representative universe of tradable stocks.

The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future.

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.

The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of 400 mid-sized companies, representing more than 7% of available market cap.

The S&P SmallCap 600® measures the small-cap segment of the U.S. equity market. Introduced in 1994, the index is designed to track the performance of 600 small-size companies in the U.S, reflecting this market segment's distinctive risk and return characteristics. The index measures a segment of the market that is typically known for less liquidity and potentially less financial stability than large-caps, the index was constructed to be an efficient benchmark composed of small-cap companies that meet investability and financial viability criteria.

The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.

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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