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Market Insights

Market Insights: February 25, 2014

Market Insights: February 25, 2014

Economic Outlook:  Following the ups and downs…

  • NAHB Housing Market Index reversed into contraction territory, reading 46 for February after 56 last month [National Association of Home Builders].
  • Weather clearly took a toll on Housing Starts which fell 16% to 880,000 annual rate in January [Census, Dept of Commerce, HUD]. However, these are good evidence of the lagged effect of last year’s rise in 30-year fixed mortgage rates.
  • Conference Board’s index of Leading Indicators continues to move up, increasing 0.3% for the month of January.
  • Though manufacturing data has been weak the past month or two, the PMI Manufacturing Index Flash Estimate comes in at 56.7 for February, a strong reading [Markit].
  • Chinese PMI Manufacturing Index Flash Estimate is weak again, at 48.3.
  • European Union PMI Composite Flash Estimate comes in at a respectable 52.7 [Markit]. Core Europe continues to diverge, with Germany’s reading at 56.1 compared to France at 47.6.

Equities Outlook:  Leadership shift…

  • U.S. equities had a good week, following through on recent strength to finish in positive territory on a year-to-date basis.
  • Reversion to the mean? Europe has the best market so far this year, the MSCI Europe is up about 1.5% YTD.
  • In recent weeks, the outflows from Emerging Markets equities have slowed down to about one-half the pace we saw at the peak.
  • Corporate earnings are surprising to the upside. Earnings in Q4 may finish at +7-8% over the previous year. This would be very strong performance.

The Fed and Fixed Income Markets:  The voice of moderation…

  • The Ten-Year Treasury ticked up a bit this past week on the better sentiment. At week’s end, it closed at a yield of 2.73%, virtually unchanged from the previous week.
  • Atlanta Fed president Dennis Lockhart expects the Fed will continue with tapering bond purchases this year. He projects that current purchase programs will end by the fourth quarter of this year. Lockhart also is comfortable with the FOMC not raising interest rates until late 2015. Lockhart is regarded by many as a moderate voice within the Fed.

The Week Ahead: 

Tuesday

  • S&P Case Shiller Home Price Index (S&P, Case-Shiller) [U.S.]
  • Consumer Confidence (Conference Board) [U.S.]

Wednesday

  • New Home Sales (Census, Dept of Commerce, HUD) [U.S.]

Thursday

  • Durable Goods Orders (Census, Dept of Commerce) [U.S.]

Friday

  • GDP 2nd estimate (BEA) [U.S.]
  • Consumer Sentiment (University of Michigan) [U.S.]