The Dow Jones Industrial Average and the S&P 500 both continued to probe the upper end of their trading ranges, pressing against the resistance of previous all-time highs. Even recently weaker large-cap technology stocks attracted some buying interest. But below the surface of the large-cap indices, trouble has been brewing. Concerns of note include weakness in economically sensitive stocks, volatility readings again nearing readings associated with complacency, and the cautionary signal suggested by stubbornly low Treasury yields (often a warning signal of a slowing economy).
These concerns must be weighed though against generally stronger-than-expected recent U.S. economic data, including a strong ISM Non-Manufacturing (services) report, a resumption in falling initial jobless claims after a brief rise, and improved Chinese export data largely due to a weaker yuan currency. With earnings season more than 90% complete, three-fourths of reporting companies have topped consensus earnings-per-share estimates, according to Factset. Investors may also get a summer boost in the form of additional monetary stimulus from European and Japanese monetary authorities.
For the week, the S&P 500 dropped -0.14%, the Dow added +0.43%, and the MSCI EAFE (developed international) fell -0.29%.
Here are the 3 stories this week that rose above the noise:
Fear of Economic Blow as Births Drop Around World
Even before the global financial crisis, demographic headwinds were expected to be a major long-term issue for economic growth with important implications for asset allocation. A recent Associated Press article details how the global recession accelerated this concern, causing a sharp and so-far persistent drop in already declining birth rates.
A rapidly aging world population may weigh on global economic growth in the coming decades and provide some steady downward pull on interest rates. While we do think rates are likely to rise in the coming years as inflationary pressures build, demographics are one force that may help moderate the rise and keep yields lower than historical norms for a very long time.
Regional Fed Chairmen Still See US Economic Growth of 3%
First-quarter 2014 U.S. GDP growth plunged to just 0.1 percent, down from 2.6 percent in the fourth quarter of 2013. However, anemic growth over the last six months could be due to the severe winter weather throughout much of the U.S.
Atlanta Fed Chairman Dennis Lockhart said last week that he expects second-quarter 2014 U.S. GDP to rebound to 3 percent while Philadelphia Fed Chairman Charles Plosser expects full year growth of 3 percent. They both indicated that they believe the U.S. economy is strong enough for the Fed to continue to wind down its bond buying by October or December of this year.
Anticipating Strong Mandate for Modi, India’s Stock Market Surges
India’s stock market surged to a record high on Monday on hopes for a new, pro-business Indian government led by the Bharatiya Janata Party’s Narendra Modi. The election in India, the world's largest democracy, began April 7 and was held in nine phases, with exit polls now suggesting that the B.J.P. coalition could receive more than 272 of the lower house’s 545 seats.
The Congress party and its allies, which have held power for 10 years, were projected to win 101 to 120 seats, according to Bloomberg. The Indian market is up 12 percent since last December following signs that a B.J.P. victory was likely. However, optimism must be tempered as India’s exit polls have previously been unreliable, incorrectly calling for a B.J.P. coalition victory in 2004.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
