Weekly Market Update, June 23, 2014

General market news
• Equity markets returned to their winning ways last week, with most major indices gaining well over 1 percent. The S&P 500 moved toward the 2,000 level with a 1.40-percent gain. Meanwhile, small-cap stocks continued to rebound from the sell-off earlier this year, gaining 2.24 percent last week. International markets lagged.
• This week should be relatively quiet in terms of economic reports. We will, however, get some more insight into the strength of the spring housing market, with both existing and new home sales data set for release early in the week.
• Treasury yields showed some volatility after last week’s Federal Open Market Committee meeting, rallying initially and then selling off later in the week. We expect the benchmark 10-year Treasury to remain range-bound in the short term, as it has for most of this year.

Equity Index 

Week-to-Date %      Month-to-Date %      Year-to-Date %      12-Month %
S&P 500

1.40%                                2.16%                         7.24%                          25.85%
Nasdaq Composite

1.33%                               3.02%                          5.20%                          31.83%
DJIA

1.03%                                1.47%                          3.41%                            17.26%
MSCI EAFE 

0.87%                               1.55%                           5.83%                          26.22%
MSCI Emerging Markets

−0.35%                           1.96%                            5.37%                          18.96%
Russell 2000 

2.24%                               4.85%                           2.73%                           24.95%
Source: Bloomberg

Fixed Income Index 

Month-to-Date %     Year-to-Date %      12-Month %
U.S. Broad Market 

−0.52%                                3.52%                          3.72%
U.S. Treasury 

−0.78%                               2.58%                           1.55%
U.S. Mortgages

−0.09%                               3.68%                           4.30%
Municipal Bond 

−0.44%                              6.12%                             5.71%
Source: Bloomberg

What to look forward to
The economic data schedule for the upcoming week is light, but reports on housing could provide some useful insight. Both Existing and New Home Sales data will be released, along with the S&P/Case-Shiller Home Price Index. Economists are predicting growth, albeit at a slower pace than the previous readings for these indicators.

Later in the week, surveys for Durable and Capital Goods Orders are expected to show an increase in May. We will also see data on Core Personal Consumption Expenditures (PCE) growth. After a 1.4-percent increase during the previous period, economists expect an increase of 1.6 percent year-over-year. PCE data is followed closely by the Fed as an inflation measure.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2014 Commonwealth Financial Network®

Weekly Market Update, June 16, 2014

General market news
• The yield on the 10-year Treasury rose as high as 2.66 percent before closing last week at 2.60 percent, the same as the previous week. The 10-year opened lower on Monday, with a yield of 2.58 percent.
• Equity markets gave back some ground last week in very orderly trading. The S&P 500 closed 0.63 percent lower after briefly trading above the 1,950 level early in the week.
• The Federal Open Market Committee meets this week, with the next decision on interest rates set for Wednesday afternoon. The Fed is expected to continue tapering according to its established schedule, reducing bond purchases by $10 billion per meeting.
• Conflict in Ukraine and Iraq hasn’t had a serious impact on financial markets yet, but it could prove to be a major disruptor if hostilities continue.

Equity Index      

 Week-to-Date %  Month-to-Date % Year-to-Date % 12-Month %
S&P 500

−0.63%                         0.76%                      5.76%                    20.81%
Nasdaq Composite

−0.22%                         1.66%                      3.82%                    26.78%
DJIA   

−0.84%                         0.43%                     2.36%                    13.19%
MSCI EAFE            

−0.02%                         0.89%                    5.14%                     21.61%
MSCI Emerging Mkts

1.07%                           2.84%                     6.28%                    14.67%
Russell 2000

−0.17%                         2.56%                     0.48%                   19.03%
Source: Bloomberg

Fixed Income Index      Month-to-Date %      Year-to-Date %        12-Month %
U.S. Broad Market              −0.54%                            3.50%                          2.53%
U.S. Treasury                         −0.68%                            2.68%                         0.60%
U.S. Mortgages                     −0.39%                            3.36%                           3.07%
Municipal Bond                   −0.50%                            6.05%                          4.27%
Source: Bloomberg

What to look forward to
Along with the Fed’s rate decision on Wednesday, a number of important economic data points are set for release this week. Industrial Production and Capacity Utilization will be reported on Monday, both of which are expected to show growth during May.

On Tuesday, we’ll see a significant number of reports, highlighted by the Consumer Price Index, which is expected to remain close to its 2-percent annualized rate. Housing Starts and Building Permits data will also be released. Experts anticipate a decline in both for May, indicating some slowing in new home construction despite lower interest rates.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2014 Commonwealth Financial Network®

Weekly Market Update, June 9, 2014

General market news • The S&P 500 Index gained 1.40 percent last week as investors continued to put money to work in the equity markets. This marks the third straight week of gains greater than 1 percent for the S&P 500. Meanwhile, the VIX closed out the week at 10.73, indicating that investor fear is at a multiyear low. • Last week’s economic reports were modestly positive, showing that the U.S. economy continues to recover after weather-related weakness in the first quarter. • Treasury rates rose again last week after bouncing off of a 52-week low in late May. The benchmark 10-year Treasury ended the week with a yield of 2.60 percent. • At its meeting next week, the Federal Open Market Committee is expected to taper its asset purchasing program by another $10 billion, reducing monthly bond purchases to $35 billion.

Equity Index Week-to-Date % Month-to-Date % Year-to-Date % 12-Month % S&P 500 1.40% 1.40% 6.44% 22.67% Nasdaq Composite 1.89% 1.89% 4.05% 27.90% DJIA 1.28% 1.28% 3.22% 15.24% MSCI EAFE 0.92% 0.92% 5.17% 22.23% MSCI Emerging Markets  1.76% 1.76% 5.17% 8.91% Russell 2000 2.74% 2.74% 0.66% 20.54% Source: Bloomberg

Fixed Income Index Month-to-Date % Year-to-Date % 12-Month % U.S. Broad Market −0.54% 3.50% 2.06% U.S. Treasury −0.66% 2.69% 0.14% U.S. Mortgages −0.39% 3.36% 3.11% Municipal Bond −0.38% 6.19% 3.02% Source: Bloomberg

What to look forward to A number of retail-focused data points will be released this week. On Wednesday, data for Retail Sales and Retail Sales ex Auto and Gas is expected to show moderate growth over the previous period. Consumer spending indicators are an important factor, given their significant impact on gross domestic product.

On Friday, we expect the Producer Price Index (PPI) to show a smaller increase on a month-over-month basis, while year-over-year growth is expected to accelerate. In addition, the University of Michigan Consumer Sentiment indicator is expected to rise from 81.9 to 83.0.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index measures the performance of intermediate (1- to 10-year) U.S. TIPS.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2014 Commonwealth Financial Network®

Market Update for the Month Ending May 31, 2014

A strong close to a quiet month U.S. financial markets had a relatively quiet month, except for the Nasdaq, which was down close to 2 percent mid-month. Still, all U.S. equity markets finished May strongly, with the Dow Jones Industrial Average up 1.19 percent, the S&P 500 Index up 2.35 percent, and the Nasdaq up 3.11 percent, despite its mid-month drop.

The weak start to May was driven largely by earnings growth, which was down significantly from fourth-quarter 2013. In addition, guidance from companies for the second quarter was much more negative than usual. On top of these factors, the economy suffered from severe weather. The strong close for the month owed a lot to much stronger economic reports, available toward the end of the period.

The MSCI EAFE Index, reflecting developed international markets, was up 1.62 percent in May, and the MSCI Emerging Markets Index gained 3.26 percent for the month. Fixed income markets showed surprising strength at month’s end. Yields on 10-year U.S. Treasury bonds, dropped from 2.63 percent at the start of May to 2.48 percent at the end, with the Barclays Capital Aggregate Bond Index gaining 1.14 percent for the month.

Winter’s last gasp as U.S. economy thaws Although the economy suffered from severe weather in the first quarter, shrinking 1 percent, more recent numbers have been substantially better. April showed a gain of 288,000 jobs, much higher than expected. Initial unemployment claims dropped to a seven-year low in April—another good sign—and average hours worked recovered to normal levels. Housing prices continued to increase at double-digit rates. Consumer confidence also improved, leading to gains in consumer spending and increases in lending. Because of these factors, most economists expect second-quarter growth to be quite strong—and to accelerate for the rest of 2014.

The Federal Reserve and interest rates The Federal Reserve (Fed) reportedly remains confident about a strengthening recovery. A surprising drop in interest rates at the end of May could call that view into question, but analysis of the supply-and-demand balance for Treasury securities suggests that the drop is market-driven. The reduction in the federal deficit means that, even with the taper, the Fed is buying a large proportion of the total debt issuance—and that sustained Fed purchasing, combined with growing demand from other buyers, is pushing rates down.

International risk remains Recent elections for the European parliament resulted in a much higher number of parliamentarians representing anti-European Union parties, indicating that Europeans are running out of patience with austerity policies. Expect to see more uncertainty around Europe through year-end.

China has become much more aggressive with respect to other countries. This is leading Japan, for example, to consider a more aggressive defensive stance, raising the geopolitical risk level.

Finally, even as Russia has seemed to pull back on Ukraine, it signed a multibillion dollar natural gas supply deal with China. This should benefit both sides but was designed to strengthen both countries in dealings with the West.

Back to the old normal With the U.S. economy continuing to mend, and because the bulk of the risk is in international issues, it seems as if we’re moving back to the old normal. Could the markets become complacent?

It would be a mistake to take the current improvement in the real economy and appreciating financial markets as a sign that risk has disappeared. Though we expect the recovery to continue, markets remain richly valued and subject to correction. Further, Europe and China retain the ability to generate negative surprises. And, although the U.S. recovery seems strong, it could weaken.

We certainly acknowledge the positive changes, but we aren’t complacent and remain on the lookout for risk. With that said, we believe that a properly diversified portfolio should allow investors to achieve their goals over time.

All information according to Bloomberg, unless stated otherwise.

Disclosure: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities.

Authored by Brad McMillan, vice president, chief investment officer, at Commonwealth Financial Network.

© 2014 Commonwealth Financial Network®