AMERIPRISE FINANCIAL, INC.
Certain Policy Questions Answered, Investor Attention Refocuses on the Economy
02/24/2015 | David Joy
Despite another round of less than robust economic news, U.S. equities continued their recent climb last week. The S&P 500 added 0.6 percent, for its third straight weekly gain. This increase came although home builder sentiment dropped, along with housing starts and building permits. Producer prices also fell, bringing the year-over-year increase to 0.0 percent. The manufacturing sector did manage a modest increase, but capacity utilization fell, while industrial production edged higher.
But stocks seemed to take their cue from events in Europe, where the expectation of an agreement between Greece and the Troika began to build throughout the week, culminating in a deal on Friday. And although the agreement appeared to be one that was far more favorable to its creditors than to the newly elected government in Greece, it was enough to push the threat of a Greek exit from the Economic and Monetary Union aside, at least for a few months.
For equity investors, especially in the U.S., the ability to sustain the recent rally will now be more severely tested. The policy background is now generally resolved and further gains will depend increasingly on economic growth and earnings.
The recent turnaround in equity prices can be traced back to the end of January. The S&P 500 was down 3.1 percent in January, bottoming on the last day. The turnaround began with the start of the new month. In February the index is higher by 5.8 percent. Bond yields have followed a similar path, as the yield on the ten-year Treasury note bottomed at 1.64 percent on January 30, and has since climbed to 2.11 percent at the end of last week.
The price of oil also reversed its six-month-long slide as February arrived, having bottomed at $49.59 a barrel for North Sea Brent on January 28, before climbing to $60.22 last Friday. The dollar's steady ascent ground to a halt in February as well. The DXY dollar index ended last year at 90.27, rose throughout January to a level of 94.46 at month-end, and has since trended sideways, closing last week at 94.25.
Perhaps most tellingly, the yield on Greek sovereign debt reached its high for the year on January 30, at 10.79 percent, and is trading early this week at a yield of 8.94 percent.
Helping to drive these reversals were the ECB's announcement of a full blown program of quantitative easing on January 22, the Fed remaining patient at its January 28 meeting, the announcement of a ceasefire in Ukraine on February 12, and last week's deal with Greece.
These policy questions have now been resolved, at least for now. The sustainability of the rally in equities, bond yields, oil, and the stabilization of the dollar will now require improving data on the economic and earnings front.
The character of the U.S. equity rally over the past three weeks suggests that investors have grown more confident that the fundamentals are set to improve. At the sector level, the strongest gains have been in the economically sensitive groups, led by materials, consumer discretionary, and technology. Only utilities are lower. Fourth quarter earnings season, now 90 percent complete, has been slightly better than expected, according to Factset, but sluggish nevertheless. Furthermore, Factset now calculates that earnings estimates show year-over-year declines in the first half of 2015, and growth of just 2.9 percent for the full year, leaving the forward price-to-earnings ratio of the S&P 500 at its highest level since 2004 at 17.1X. This leaves little room for disappointment should the economic data continue to run below expectations.
The economic calendar this week is full of releases that will either reinforce the recently improved sentiment, or begin to erode it. On the housing front, new and existing home sales are expected to decline somewhat, while pending home sales look to rise modestly. Durable goods orders are expected to rebound from a decline in December, while consumer prices are forecast to show a year-over-year decline, and fourth quarter GDP is expected to be revised lower. Lastly, Federal Reserve Chair Yellen delivers her Congressional testimony on Tuesday and Wednesday.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
The U.S. Dollar Index (DXY) measures the dollar's value against a trade-weighted basket of six major currencies.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
© 2015 Ameriprise Financial, Inc. All rights reserved.
02/24/2015 | David Joy
Despite another round of less than robust economic news, U.S. equities continued their recent climb last week. The S&P 500 added 0.6 percent, for its third straight weekly gain. This increase came although home builder sentiment dropped, along with housing starts and building permits. Producer prices also fell, bringing the year-over-year increase to 0.0 percent. The manufacturing sector did manage a modest increase, but capacity utilization fell, while industrial production edged higher.
But stocks seemed to take their cue from events in Europe, where the expectation of an agreement between Greece and the Troika began to build throughout the week, culminating in a deal on Friday. And although the agreement appeared to be one that was far more favorable to its creditors than to the newly elected government in Greece, it was enough to push the threat of a Greek exit from the Economic and Monetary Union aside, at least for a few months.
For equity investors, especially in the U.S., the ability to sustain the recent rally will now be more severely tested. The policy background is now generally resolved and further gains will depend increasingly on economic growth and earnings.
The recent turnaround in equity prices can be traced back to the end of January. The S&P 500 was down 3.1 percent in January, bottoming on the last day. The turnaround began with the start of the new month. In February the index is higher by 5.8 percent. Bond yields have followed a similar path, as the yield on the ten-year Treasury note bottomed at 1.64 percent on January 30, and has since climbed to 2.11 percent at the end of last week.
The price of oil also reversed its six-month-long slide as February arrived, having bottomed at $49.59 a barrel for North Sea Brent on January 28, before climbing to $60.22 last Friday. The dollar's steady ascent ground to a halt in February as well. The DXY dollar index ended last year at 90.27, rose throughout January to a level of 94.46 at month-end, and has since trended sideways, closing last week at 94.25.
Perhaps most tellingly, the yield on Greek sovereign debt reached its high for the year on January 30, at 10.79 percent, and is trading early this week at a yield of 8.94 percent.
Helping to drive these reversals were the ECB's announcement of a full blown program of quantitative easing on January 22, the Fed remaining patient at its January 28 meeting, the announcement of a ceasefire in Ukraine on February 12, and last week's deal with Greece.
These policy questions have now been resolved, at least for now. The sustainability of the rally in equities, bond yields, oil, and the stabilization of the dollar will now require improving data on the economic and earnings front.
The character of the U.S. equity rally over the past three weeks suggests that investors have grown more confident that the fundamentals are set to improve. At the sector level, the strongest gains have been in the economically sensitive groups, led by materials, consumer discretionary, and technology. Only utilities are lower. Fourth quarter earnings season, now 90 percent complete, has been slightly better than expected, according to Factset, but sluggish nevertheless. Furthermore, Factset now calculates that earnings estimates show year-over-year declines in the first half of 2015, and growth of just 2.9 percent for the full year, leaving the forward price-to-earnings ratio of the S&P 500 at its highest level since 2004 at 17.1X. This leaves little room for disappointment should the economic data continue to run below expectations.
The economic calendar this week is full of releases that will either reinforce the recently improved sentiment, or begin to erode it. On the housing front, new and existing home sales are expected to decline somewhat, while pending home sales look to rise modestly. Durable goods orders are expected to rebound from a decline in December, while consumer prices are forecast to show a year-over-year decline, and fourth quarter GDP is expected to be revised lower. Lastly, Federal Reserve Chair Yellen delivers her Congressional testimony on Tuesday and Wednesday.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
The U.S. Dollar Index (DXY) measures the dollar's value against a trade-weighted basket of six major currencies.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
© 2015 Ameriprise Financial, Inc. All rights reserved.
|
distributed by
|
