Contributed by Doug Walters
The pulse of the people
In a week marred by tragedy in Belgium, you would be forgiven for not noticing that the five week rebound in equities came to an end. The pullback was modest though, with the terrorist attacks being digested fairly easily. In a dramatic show of resilience, Belgian stocks were up on Tuesday and Wednesday.
- At first blush, it is sad to think that such a tragedy has become so commonplace that it can be shrugged off so completely by stocks. However, the equity markets reflect the pulse of hundreds of millions of participants, and it is encouraging that the prevailing view is clearly for economic stability.
Are we there yet?
The heightened state of alert around the world does not appear to have brought focus to the U.S. presidential race where candidates spent more time discussing each other’s spouses than they did providing solutions to the many challenges that will face the next president. How many more months of this do we have?
|Indices & Price Returns||Week (%)||Year (%)|
|S&P 400 (Mid Cap)||-1.1||1.1|
|Russell 2000 (Small Cap)||-2||-5|
|MSCI EAFE (Developed International)||-2.5||-5.6|
|MSCI Emerging Markets||-1.6||2.5|
|S&P GSCI (Commodities)||-2.2||5.2|
|MSCI U.S. REIT Index||-1.4||2|
|Barclays Int Govt Credit||0||1.6|
|Barclays US TIPS||-0.4||3.1|
The Housing Recovery Continues
Housing market news came in mixed this week as February existing home sales lagged expectations while newly built home sales beat them. Homebuyers are choosing to buy new homes despite an average price premium of 25% over existing ones. Growth in new home sales came from the Western region of the United States while sales lagged in the Northeast, Midwest and South. Two key drivers of the housing market are:
- The job market which has been steadily improving, and
- Mortgage rates which have been at historic lows due to a Federal Reserve policy of encouraging people to borrow.
In our view, the housing market will continue to trend upwards as it recovers from the 2008 financial crisis. Demand remains robust and there is a lack of available new housing options for homebuyers. This is causing home prices to creep up, further incentivizing home builders to keep building.
Contributed by Aaron Evans
Take a Hike?
The highlight of next week will be the March jobs report on Friday, with another 200,000 plus estimated additions, while the unemployment rate is expected to remain below the 5% mark.
- With a market rally in March, a strong jobs report might be all the Fed needs to put another quarter point interest rate hike in play, which would be in line with their previously outlined plans for 2016.
- Coincidentally, Fed Chair Janet Yellen will be a keynote speaker at next week’s Economic Club of New York luncheon where we are sure she will be pressed regarding a rate rise.
President Obama will meet with Chinese President Xi Jinping next week in Washington during a nuclear summit comprised of dozens of world leaders.
- The leaders’ agenda is likely to include punishment of North Korea for its nuclear program, maritime disputes and cybersecurity issues.
STRATEGIC Asset allocation
Markets maintained a sense of relative calm post-Brussels. While stock markets were down on the week, the moves appeared more driven by a desire to take some chips off the table after a strong run. Geopolitics did not hit markets significantly. A few of the year’s asset class leaders saw their leads clipped. Value gave up some ground to Growth. However, most of the relative trends have continued with Small Cap continuing to lag and Emerging outperforming Developed international.
Equity allocation continues to be above our longer-term targets and earlier moves this year had pushed them even higher. This week’s slight retreat has reduced them somewhat but all-in-all the moves have not triggered the need for any rebalancing.
No Swoosh this time
Energy joined the Industrial sector at the bottom of the pack, while a healthy bounce from Health Care put that sector on top. In other Strategy news…
- Nike Inc.’s (NKE) results beat earnings expectations but fell short on the revenue side. The report was far from a slam dunk, as currency continues to weight on profits. Also, the low teen earnings growth guidance was a little more conservative than expected. Future orders increase of 12% year over year was a bit light as well.
STRATEGIC equity income
I’ll see you in court
The Energy sector gave back some of its recent gains. The strategy’s high dividend paying sectors found some fans this week, pulling the Utilities, Telecom, Consumer Staples and Health Care sectors to the top. Speaking of Health Care…
- Health insurer Anthem, Inc. (ANTM) is suing prescription benefit manager Express Scripts (ESRX) (not a strategic holding) to recover damages for pharmacy pricing. Anthem claims that it is owed $3 Billion dollars as Express Scripts did not provide competitive pricing to the insurer. Anthem has yet to terminate its contract with Express Scripts, but it may be on the horizon.
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