The market’s virtually uninterrupted rise since mid-October continued in the past week, with the S&P 500 rising four out of five days to close at another all-time high. Global monetary policy provided a strong catalyst for higher asset prices during the week, starting with Wednesday’s release of the Fed’s October meeting minutes revealing concern over a possible downward shift in longer-term inflation expectations. Some of the participants also noted that any downturn in inflation expectations “would be even more worrisome if growth faltered.”
So, how is the growth outlook shaping up? Well, for most of the world, growth is decelerating. The latest evidence was the purchasing managers’ index for the Eurozone, which unexpectedly dropped to a 16-month low in November, suggesting that GDP for the region is barely growing, and a drop in the new-orders component indicates that Europe’s growth may slow even further by the end of the year. Here in the U.S., though, the data has thus far been able to generally buck the global trend.
For the week, the S&P 500 rose +1.16%, the Dow Jones Industrial Average added +0.99%, and the MSCI EAFE (developed international) increased +1.03%.
Here are the 3 stories this week that rose above the noise:
Home Prices in 20 U.S. Cities Increase at a Slower Pace
The growth in U.S. home prices continues to decelerate as the S&P/Case-Shiller index of property values increased 4.9 percent from September 2013, down from last month’s 5.6 percent reading. The current growth represents the smallest gain since October 2012.
On a month-over-month basis, seasonally adjusted prices increased 0.3 percent in September. Most analysts believe the year-over-year gauge is a better indicator of trends in prices than the month-to-month data. Despite the recent decline, David Blitzer, chairman of the S&P index committee, stated, “with the economy looking better than a year ago, the housing outlook for 2015 is stable to slightly better.”
Why the Saudis Actually Like it When the Price of Oil Plummets
The price of crude oil has plummeted by 35 percent over the past year, easing energy costs to global consumers. This Thursday, the Organization of the Petroleum Exporting Countries (OPEC) meets to discuss possible output cuts to shore up the price of crude oil. However, analysts say the cartel’s largest producer, Saudi Arabia, is content to see U.S. shale oil producers suffer from low oil prices and will resist pressure to reduce output.
Low prices could potentially make U.S. shale oil production unsustainable and force U.S. producers out of business. With some analysts predicting first-half 2015 demand for OPEC crude oil at only 28-29 million barrels per day vs. the 30.9 million barrels a day the cartel produced last month, they say OPEC needs to cut 2 million barrels a day to balance the market. Absent a cut of this magnitude (which seems unlikely this week), oil prices may well be headed lower.
In Change of Strategy, China Cuts Interest Rate
The People’s Bank of China (PBOC) cut interest rates for the first time in over two years in an attempt to stabilize China’s slowing growth, ward off deflation, and assist local state-owned companies that are having trouble managing high debt burdens. China’s leadership was previously resistant to a rate cut based on fears that lower interest rates could potentially create a debt and property bubble.
In recent months, growth began to weaken and the property market has cooled. GDP growth slowed to 7.3 percent last quarter (below China’s target of 7.5 percent) and home prices declined in October year-over-year in 67 of the 70 largest cities in China.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
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.
