The S&P 500 and Dow powered to fresh new all-time highs before selling off after last Friday’s jobs report. The bulls were comforted by an apparent growth revival as the U.S. economy awakens from its harsh winter slumber. Most of the March data released this week showed modest but consistent improvement from February’s lackluster numbers. That included improved ISM services and manufacturing data, vehicle sales and ADP employment report. European central banks left policy rates unchanged again, despite inflation measures in the euro area falling to the lowest levels in four years. And emerging market equities have been rallying since mid-March.
For the week, the S&P 500 added +0.40%, the Dow gained +0.55%, and the MSCI EAFE (developed international) was up +1.53%.
Here are the 3 stories this week that rose above the noise:
What the Jobs Report Means for Housing
Housing data has weakened over the last few months, but a recent The Wall Street Journal Real Time Economics article paints a brighter outlook for the housing recovery. The article indicates rising interest rates and rising home prices coupled with unseasonably cold weather put a pause in the housing recovery this winter. However, the latest employment data offers a few signs that things will improve.
First, employment for 25-34 year-olds, a key group for first-time home buyers, is steadily improving and approaching pre-crisis levels. Additionally, the unemployment rate for construction workers continues to fall and is at its lowest level since 2008. And residential construction employment is 30,800 workers higher than three months ago, signaling optimism within the industry for improved housing demand in the coming months.
IMF Says U.S. Drives Growth as Russia, Brazil Weaken
A Bloomberg article summarizes the latest International Monetary Fund (IMF) projections for global growth. Not surprisingly, the IMF expects the United States, Germany and the U.K. to be bright spots in the global economy for the remainder of the year and emerging markets to continue to exhibit disappointing growth.
The IMF’s reduced growth expectations for emerging-market economies reflects what are now widely held concerns, and the recently strong price action in emerging equities in spite of growing pessimism may suggest economists have become overly pessimistic in their outlook.
Quack Quack: Demand, Meet Supply
An article by columnist Josh Brown reviews the torrid IPO market since 2011, raising a cautionary flag as a white-hot IPO market coupled with sky-high valuations is often seen at market tops. 2013 was a banner year for IPOs, the best one since 2000. A total of 222 companies went public last year raising $55 billion. Fast forward to 2014 and, even before this week, the “ducks” have been exceptionally well fed.
The sixty-plus IPOs of Q1 2014 represented a 100 percent jump over what we saw in the first quarter of last year. Total dollars raised also jumped by 40 percent to $10.6 billion, and 70 percent of this quarter’s new issues were highly speculative companies losing money over the prior year. Given the rout of many recent IPOs, and many pricier technology and biotechnology shares over the past two weeks, signs have started to appear that indicate the “ducks” are close to satiated, if not fully stuffed.
International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
