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Market Insights

Market Insights: April 6, 2015

Economic Outlook – Just a Few Comments After the Short Week

  • Our comments are brief after a holiday-shortened week.
  • We talked last week about the new home sales report week before last, and that it was positive. Some further housing news – the Pending Home Sales Index shows a 3.1% month to month increase in February (National Association of Realtors).
  • Conference Board’s Consumer Confidence Index continues higher, and closed at 101.3 in March, a significant jump from 98.8 the previous month.
  • We are still seeing some divergence in the two main manufacturing gauges. The PMI Manufacturing (Markit) sits at 55.7 while ISM’s Manufacturing Index (ISM) is at a lower 51.5. This will continue to bear watching.
  • The labor market numbers look strong. Initial Jobless Claims are now all the way down to 268,000, which is among the lowest readings since the turn of the Millenium.
  • One contrary indicator was a weak Employment Situation report. Payroll jobs increased by a fairly low 126,000 in March after increases of 264,000 in February and 201,000 in January. The unemployment rate held steady at 5.5 percent and matched expectations.
  • Looking overseas, the EU Commission’s measure of economic sentiment (ESI) advanced a further 1.6 points (following a higher revised February reading) to 103.9 in March. That makes four monthly increases in a row and we are now at a level we have not seen in four years.
  • The manufacturing gauge (PMI) is higher across Europe. Germany (52.8), Italy (53.3) and Spain (54.3) all came in a levels not seen in a number of months. Only France remains in contraction mode, but saw its PMI edge up, at 48.8.

Equities Outlook: Looking at the Scorecard

  • We now have the final numbers for the first quarter of 2015.
  • The S&P 500 Index finished just barely positive (little less than +1%). The large cap growth sector outperformed large cap value by a pretty wide margin.
  • Similar to what we saw before 2014, mid cap and small cap stocks are doing better than large cap companies. The Russell Mid Cap Index and the Russell 2000 Small Cap Index were both posting first quarter returns of approximately +4.0%.
  • The likely explanation: a strong dollar probably does not hurt the smaller stocks’ earnings as much as it does for multinational companies.
  • As we’ve discussed, International stocks (+4.88%) and Emerging Market stocks (+2.24%) are doing pretty well. The MSCI EAFE Index for developed international markets was in fact the top performer for the quarter, reminding us of the importance of global diversification in portfolio construction.

Fixed Income Markets: Rates Down a Bit Further

  • The yield on the Ten-Year Treasury Note continues to decline. Last week, the yield on the Ten-Year closed at 1.83% from the previous week’s 1.92%.

The Week Ahead

Monday

  • U.S., ISM Services Index (ISM)

Wednesday

  • U.S., FOMC Minutes Released