/perspectives/weekly-viewpoint/all-eyes-on-jackson-hole-meeting

All Eyes on Jackson Hole Meeting

The Dow Jones Industrial Average (Dow) added 0.66%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.2%, the Standard & Poor’s 500 Index® (S&P 500) finished up 1.22%...

August 18, 2014    |    By Mike Schwager

Performance for Week Ending 8/15/2014:

The Dow Jones Industrial Average (Dow) added 0.66%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.2%, the Standard & Poor’s 500 Index® (S&P 500) finished up 1.22% and the NASDAQ Composite Index (NASDAQ) tacked on 2.15%. Sector breadth was positive with 9 of the 10 S&P sector groups finishing higher. The Healthcare sector (+2.32%) led the way higher followed by Technology (+1.75%) and Consumer Staples (+1.41%).

Index* Closing Price 8/15/2014 Percentage Change for Week Ending 8/15/2014 Year-to-Date Percentage Change Through 8/15/2014

Dow

16662.91

+0.66%

+0.52%

Wilshire 5000

20268.33

+1.20%

+5.27%

S&P 500

1955.06

+1.22%

+5.77%

NASDAQ

4464.93

+2.15%

+6.90%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 8/11/2014-8/15/2014

The major market indices finished the week solidly higher as investors took advantage of the recent pullback to increase equity exposure. Last week’s rally was broad in nature with nearly every major global market index posting a gain.

The global rally was ignited by a batch of weak economic data out of Europe and Japan, which in turn, raised confidence global central banks will be in no hurry to tighten policy. Adding to the positive sentiment was easing geopolitical fears surrounding the Ukraine/Russia conflict and a sharp pullback in energy prices. Although widely expected, GDP growth in Europe came to a screeching halt (0.0%) while Japan’s second quarter GDP plunged by 6.8%. The weakness in Japan reflected payback from a sharp hike in the consumption tax during the quarter. Knowing the hike was coming, Japanese consumers ramped up purchases during the first quarter as suggested by the robust 6.1% growth rate. In Europe, investors were expecting a weak GDP report; however results came in slightly below expectations. Paradoxically, European markets rallied following the report suggesting investors are starting to discount additional policy moves by the European Central Bank (ECB). While the ECB recently expressed patience in terms of the economic recovery, the weak growth coupled with the rising threat of deflation, certainly seems to raise the probability that more stimulus will be needed.

The U.S. economy continues to plod along at what looks to be a 3%-plus growth rate over the next few quarters. Last week’s economic calendar was relatively light but the bulk of the reports signaled the economy continues to move forward. On the labor front, the Labor Department reported that job openings rose to the highest level since February 2001. The report suggests that corporations are stepping up their hiring plans in light of the improving economic outlook. The number of people quitting their jobs increased for a fourth straight month a sign of building confidence in the ability to secure a new position. The Labor Deportment also reported that initial jobless claims (4-week average) came in at 295.8K, just off the lowest level in over eight years. Elsewhere, the New York Federal Reserve (Fed) reported that manufacturing activity in the greater New York region expanded for the eighteenth consecutive month. Inflation pressure also remains very low as suggested by the 1.7% year over year increase in wholesale prices. The muted level of inflation should provide the Fed with room to maintain accommodative policy as it scales back its monthly bond buying program.

Jackson Hole Meeting:
All eyes will be focused on the upcoming Fed gathering in Jackson Hole, Wyoming. The theme for this year’s meeting is “Re-evaluating Labor Market Dynamics”. The Jackson Hole meeting is watched very closely as in years past it has been used as a forum to communicate policy. In fact, several years ago Fed Chairman Bernanke used the symposium to float the concept of quantitative easing. While it is unclear whether Yellen will tip her hat in terms of future monetary action, she is expected to spend a good portion of her time discussing the metrics, beyond the unemployment rate, that she utilizes to determine the health of the broader labor markets (her so-called dashboard approach).  Investors will also listen closely to the tone of her speech and whether there is any change in her generally “dovish” rhetoric – stay tuned.

The Week Ahead:

As mentioned above, the focal point for the upcoming week will be the Jackson Hole symposium which is scheduled to kick off Thursday evening and go through Saturday. Fed Chairwoman Yellen will give the keynote address on Thursday morning and according to media reports, representatives from the Bank of England, the Bank of Japan, and the Central Bank of Brazil will also be presenting at the event. The earnings calendar continues to wind down with only 19 members of the S&P 500 scheduled to report results. Retailers will account for the bulk of the reports with results due out from Home Depot, TJX Cos., Target, Staples, Lowe’s and The Gap. The focal points on this week’s economic calendar will be housing market data and inflation. On the housing front, scheduled reports include the National Association of Home Builders housing market index, July housing starts/building permits, and July existing home sales. The July Consumer Price Index (CPI) will be released Tuesday morning.

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm’s headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor’s 500® Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

NAHB/Wells Fargo Housing Market Index is an index based on a monthly survey of members belonging to the National Association of Home Builders (NAHB) that is designed to measure sentiment for the U.S. single-family housing market. The NAHB/Wells Fargo Housing Market Index (HMI) is a widely watched gauge of the outlook for the U.S. housing sector.

Consumer Price Index – CPI is A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.

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