June 29, 2015

June 29th, 2015

US Economy – Not too Hot, But Lukewarm is OK

The economy is continuing to rebound after the weak first quarter, but the second quarter still reflects very slow growth.  The US consumer, appears to be spending again, highlighted by retail sales rebounding in May.

Markets

  • US stocks have managed to nudge their way higher so far this year, but have been in the narrowest range in S&P 500 history.
  • Greece continues to deal with debt deadlines. We don’t know how this will end but the damage to the European economy with a potential default should be relatively minor. The news media will hold interviews with financial pundits who will forecast bad outcomes.  That’s what the media does to attract your attention.  But, experience indicates the markets will be affected only in the short term due to Greece’s mounting problems and will appear as a mere bump in road when looking back from a future vantage point.

The Markets Last Week

After a somnolent week on Wall Street, volume kicked up Friday as traders placed rapid-fire bets on stocks affected by annual changes to the Russell indexes. But the day’s surge did little to lift U.S. stock indexes, which ended the week down slightly.

Stocks also rose—and fell—last week on news about Greece, which had only until June 30 to pay off a loan from the International Monetary Fund and was working with euro-zone leaders to unlock bailout money before the end of the weekend. Greek Prime Minister Alexis Tsipras has called a referendum for July 5 to vote on terms of the latest aid package.

The Dow rose Monday and Tuesday, fell Wednesday, rose Thursday, and fell Friday, ending the week just slightly below where it started.

The Dow Jones Industrial Average fell 69 points, or 0.4%, on the week, to 17,946.68, while the Standard & Poor’s 500 index slipped 8.5 points, also to 2101.49. The Nasdaq Composite fell 36.5 points, or 0.7%, to 5080.51.More than $4 trillion in capital is benchmarked to the Russell indexes, according to Nicholas Colas at Convergex. Inclusion is based largely on market capitalization. When the indexes rebalanced Friday, fund managers who track them bought and sold stocks to match the new weightings. Friday’s volume on the NYSE was the year’s third highest.

Traders tend to play these moves too, with some buying shares earlier in the year of companies likely to be added to the Russell 2000, and selling them just before the rebalancing. It can be a lucrative trade: The stocks being added to the Russell 2000 are up 11% since May 1, according to Colas.

Friday’s flurry of activity came amid a longer lull in the market. With the kickoff of second-quarter earnings season still two weeks away, investors have time to fret about Greece—perhaps too much time. U.S. jobs and wage data are more important factors for the market than Greece, says Quincy Krosby, market strategist at Prudential Financial. But in the absence of new data points, investors are “waiting for a catalyst and hoping for a positive one.” (Source: Barron’s Online).

The Numbers

Returns through 6-26-2015 1-week Y-T-D 1-Year 3-Years 5-Years 10-Years
Bonds- BarCap  Aggregate Index    -.9     -.7   1.3     1.6     3.3     4.4
US Stocks-Standard & Poor’s 500    -.4     3.1   9.6   19.3   16.8     8.1
Foreign Stocks- MS EAFE Developed Countries     .9     8.7    -.8   14.9    9.7     5.4

Source: Morningstar Workstation. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  Three, five and ten year returns are annualized excluding dividends.

Motivational Quote of the Week

“The most valuable gift you can give to humanity is a good example.”

― Ifeanyi Enoch Onuoha


 
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