The past week was a relatively uneventful one for equity markets, with a light economic calendar and temporary resolution to the Greek debt drama allowing markets to consolidate February's gains. On Friday, the already soft, advanced estimate for fourth quarter GDP of 2.6% annual growth was revised to an even lower 2.2%. However, consensus expectations were for a sharper downward revision to 2.0% and as a result, the news had little market impact.
For the week, the S&P 500 fell -0.27%, the Dow Jones Industrial Average dropped -0.04%, and the MSCI EAFE (developed international) gained +1.09%.
Here are the 3 stories this week that rose above the noise:
We’re at our Lowest Level of Misery in 56 Years, Thanks to Gas Prices
The Misery Index, which is the sum of the unemployment rate and the annual change in the consumer price index, is at its lowest level since the late 1950s. The Misery Index captures the economic anxiety of the time and has dropped considerably since its multi-decade peak in September 2011, when the unemployment rate was 9 percent and inflation was 3.8 percent. At present, the unemployment rate is 5.7 percent and inflation is -0.1 percent.
A low Misery Index is positive for consumer confidence and it places our current economic state in perspective compared to periods of high unemployment and elevated inflation. However, the Misery Index doesn’t capture some of the weakness in the labor market that is not captured in the unemployment rate, including the high level of part-time workers who would like to work full-time along with discouraged workers who have given up their job search.
Next Curveball for Oil: an Iran Nuclear Deal
With crude oil inventories sitting at record high levels, additional supply could be soon brought to the market. There is growing discussion that a deal on Iran's nuclear program could see a complete removal or easing of sanctions on Iranian oil exports to the U.S. and Europe. This topic will be in focus this week as Israeli Prime Minister Benjamin Netanyahu addresses the U.S. Congress. The magnitude of sanction relief would determine the potential impact on crude prices. However, there is debate over how much oil Iran could produce and how quickly additional capacity could be brought to market.
Europe Is the Market to Watch Now: David Rosenberg on the Outlook for Oil, the Loonie, Stocks and Bonds
Economist David Rosenberg, who became well-known for his bearish views on equities and bullish stance on bonds for most of the past two decades, has become much more optimistic on the global economy and equities in recent years. In his recent article he details his current outlook, which is notable for a generally bullish call on Europe. Rosenberg makes an important point, that the monetary base in Europe has already stopped contracting and is now growing at a solid pace just as a large quantitative easing program is set to begin. This suggests that the risk of a nasty deflationary episode is diminishing which creates the potential for a reversal higher in global bond yields later this year.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.
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.
