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Market Insights

Market Insights: June 29, 2015

Economic Outlook:  Is it a “Thumbs Up”?

  • Steve Jobs once described Apple this way: “Our DNA is as a consumer company – for that individual customer who’s voting thumbs up or thumbs down. That’s who we think about.” That consumer may also be the best benchmark on the economy and right now, they are giving the thumbs up.
  • The housing sector continues to strengthen. The Existing Home Sales numbers last month showed a 5.1 percent increase to a 5.35 million annual rate. That surprised most economists. The year-over-year increase is over 9.0%.
  • New Home Sales also showed a nice increase +2.2 percent in May. This number was higher than most forecasts by economists.
  • Housing supply has actually become tighter and it would not be surprising to see this result in a pick-up on new home construction. This will be worth watching.
  • Initial Jobless Claims continue posting at low levels, with the four week average now standing at 274,000.
  • We’re seeing some encouraging data on the consumer spending front also. There was a 0.5 percent rise in personal income last month. Personal spending for autos and retail goods was high.
  • University of Michigan’s Consumer Sentiment showed a sharp bounce up from 94.6 where it closed out last month, to 96.1. In the surveys, consumers cited strong optimism about the jobs market.
  • Although many commentators worry about imminent inflation, the closely watched core PCE price index edged up only 0.1 percent higher last month. The year-over-year measurement is only +1.2%.
  • The final numbers are not yet available, but Strategas commented last week that they are seeing a nice uptrend in second quarter tax collections by the Treasury. This kind of trend in the data usually precedes a strong period of corporate profits and may bode well for Q2 earnings.
  • Also, the final estimate of 1Q GDP was revised and moved back up almost to positive territory, finishing with a 0.2% decline, up from a 0.7% decline which is where we landed after the second estimate.
  • Pretty good economic news in the Eurozone last week with the flash PMI Composite coming in at 54.1, which is a 49 month high for that metric. That could be a good indicator of improved Q2 GDP growth.
  • Greece is facing default without a new deal because on Tuesday it must make a significant payment to the IMF. Prime Minister Tsipras pledged to put the creditors’ demands to a referendum vote but urged Greek voters to vote “No”. The Euro-zone creditors have essentially said “No Deal” over the weekend, which left Greece with no option except to close their banks this week to stem capital outflows. We can expect volatility as this plays out over the next week.

Equities Outlook:  More Volatility Would Not Be Surprising.

  • Last week was another mostly choppy week in equity markets. The ultimate outcome of the continuing talks between Greece and her creditors will determine how markets finish out the first half of the year.
  • From a sector perspective, health care is leading the way year to date up 11.87%, while utilities are bringing up the rear, down 10.51%.
  • From a technical perspective, the Russell 2000 Index of smaller stocks and the NASDAQ Composite are both at all-time highs. The Dow and S&P 500 are below their all-time highs, but only by a small percentage. While this provides a decent technical backdrop, some of the secondary technical indicators are showing some weakness. So, while there is not cause for panic, the market continues to show some vulnerability to a correction.

Fixed Income Markets:  Drifting Rates on the 10 Year.

  • There was a slight drop-off in yield on the 10 Year Treasury note at the end of last week, as the yield closed at 2.32%, drifting down from where it has traded over the previous two weeks. It has traded as high as 2.48% on an intra-day basis.

The Week Ahead

Tuesday

  • Consumer Confidence Index

Wednesday

  • Construction Spending
  • Auto Sales

Thursday

  • Initial Unemployment Claims