Marketing Insights: July 21, 2014
Economic Outlook: Was it a pause that refreshes?
- There has been some concern in recent months about the sustainability of the economic recovery after the slow first quarter, weighed down by the effects of the “polar vortex”. Our belief has been that these pauses we’ve observed are reflections of temporary factors.
- We commented on Retail Sales weakness last week. The June report showed +0.2% growth in June, indeed missing expectations. However, the May number was revised up to 0.5% growth from 0.3%. As we commented last week, the year-over-year change is +5.0%, a nice increase.
- Industrial Production numbers came in below expectation in May but are still growing, up 0.2% for the month. There was strength showing in a number of regions.
- Manufacturing activity accelerated sharply in the New York Region. The numbers in the Empire State Manufacturing Survey increased to 25.6 from 19.28 [Federal Reserve Bank of New York].
- Similarly, the Philadelphia Fed Survey showed an increase to 23.9 this month from 17.8, reaching the highest reading since March of 2011 [Federal Reserve Bank of Philadelphia].
- After some indications of weakness, the housing numbers appear to be picking up again. The National Association of Home Builders Housing Market Index, a survey of housing market conditions, returned to expansion territory last month at a 53 reading. This reverses the pattern of the previous few negative months in a row.
- The PPI numbers rebounded in June, turning up 0.4% month-to-month, standing at +1.9% year-over-year. The Core Inflation numbers showed much of the same pattern.
- The recent improvement with Initial Jobless Claims continues, the latest numbers trending slightly lower, down to 302,000 this week.
- The Conference Board’s Leading Indicators turned up +0.3% in June.
- The Euro-zone production numbers for May showed a definite weakening trend, falling 1.1%, after a 0.7% rise in April. The weakness was reflected across the region. Although the regional numbers are down, they remain above 50 and therefore in the growth column.
- Mario Draghi stated last week that debt purchases similar to those employed by the Fed in the U.S. may be a tool to be employed. “QE falls squarely in our mandate,” Draghi said last week.
Equities Outlook: Contrarian sentiment…
- The Dow Jones Industrial Average reached a record close last week for the 15th time in 2014.
- Is it a top in the market? It is unusual for a market to top in the face of widespread investor skepticism. (Normally, you expect to see euphoria at market tops.) Bloomberg’s recent global survey of portfolio managers revealed that over 60.0% believe the U.S. market is in an unsustainably high bubble. From a contrarian view, this is good news. Bull markets typically do not end with a dominant bearish outlook.
- Fed accommodation is likely to continue. In her testimony last week to the Senate Banking Committee, Janet Yellen stated, “…the recovery is not complete.”
Fixed Income Markets: Understanding “False Dawns”…
- The Ten-Year Treasury yield closed below the psychological 2.5% level. It had closed the previous week at a yield of 2.52%, but closed at the end of last week trading at the 2.48% level.
- Fed Chair Janet Yellen testified before the Senate Banking Committee last week. She commented that while there were mixed signals concerning the economy, many indicators are now substantially more positive. She indicated that the Fed has seen ‘false dawns’ in the recovery before this, so it is likely they will remain cautious to keep the economy is on a solid upward trajectory.
The Week Ahead
- CPI (Bureau of Labor Statistics)
- Existing Home Sales (National Association of Realtors)
- PMI Manufacturing “Flash” (Markit)
- New Home Sales (Dept of Commerce)
- Durable Goods Orders (Census, Dept of Commerce)