Mixed domestic data, further signs of weakness in Europe, and some encouraging data out of China headlined a week’s choppiness for asset markets. For the week, the S&P 500 was little changed, emerging markets outperformed, and small-caps continued a month-long trend of notable underperformance. The major indices have spent most of July searching for direction with a generally solid early earnings season offset by very mixed economic reports.
The labor market is a key economic component that continues to show its best momentum in years. The latest encouraging data was Thursday’s report on weekly initial jobless claims, which declined by 19,000 to a seasonally adjusted 284,000. This was the lowest weekly reading since February of 2006.
For the week, the S&P 500 gained +0.01%, the Dow Jones Industrial Average lost -0.82%, and the MSCI EAFE (developed international) rose +0.43%.
Here are the 3 stories this week that rose above the noise:
Geopolitical risks have been rising recently with the United Sates and Eurozone increasing sanctions on Russia and Israel escalating its military efforts in the Gaza strip. Positively, so far, increased geopolitical strife has yet to materially impact oil prices, which have actually fallen 3% over the past year.
As the geopolitical chess game plays out in the Ukraine, an article by Gerald Seib from The Wall Street Journal points out why Russian President Vladimir Putin is willing to take big risks in Ukraine and why the Unites States and its allies should see his power play as an effort to alter not just the arc of Ukraine but all of Europe. The article points out that Poland, the country that integrated itself into the Western economy, has growth almost twice as fast of Ukraine. Last year its growth rate was three times larger. This contrast between Poland and Ukraine represents a threat to Putin since emulating Poland would cause the Ukraine to pivot westward, ending his alleged near-term dreams of rebuilding the Russian empire.
Home Prices in 20 U.S. Cities Rose at Slower Pace in May
Recent data on housing-market activity has been very mixed, indicating a sluggish recovery that is unlikely to provide an economic tailwind in the near term. The latest reading on the S&P/Case-Shiller index of property values in 20 cities also suggests that price appreciation continues to slow. The index rose 9.3% year-over-year, which was the smallest gain since February 2013.
Moreover, the index actually showed a price decline versus the prior month’s reading for the first time in two years. The latest data on home prices confirms the sluggish growth seen in recent starts and sales data, suggesting economic growth may not receive the boost from housing many were hoping for in 2014.
IMF cuts global growth outlook as U.S. recovery falters
The International Monetary Fund (IMF) cut its 2014 global growth forecast because of weaker-than-expected growth in the first quarter and waning optimism for emerging-market growth for the remainder of the year. In its view, global growth will reach 3.4% in 2014, a drop of 0.3% from its outlook in April, but still ahead of 3.2% growth in 2013. The IMF also cut its 2014 U.S. economic growth forecast to 1.7%, well below its April prediction of 2.8% growth, following the 2.9% contraction in GDP growth in the first quarter.
However, the IMF raised its outlook for Japan. It predicts that economic growth will reach 1.6%, a 0.3% increase from its view in April, largely because of the positive effects that Abenomics (economic reform introduced by Prime Minister Shinzo Abe) is having on the Japanese economy.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
