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Markets Look past Near-term Headwinds

The Dow Jones Industrial Average (Dow) added 0.45%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 0.37%, the Standard & Poor’s 500® Index (S&P 500) finished up 0.31% and the Nasdaq Composite Index (NASDAQ) tacked on 0.89%.

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May 18, 2015    |    By Mike Schwager

Performance for Week Ending 5/15/15:

The Dow Jones Industrial Average (Dow) added 0.45%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 0.37%, the Standard & Poor’s 500® Index (S&P 500) finished up 0.31% and the Nasdaq Composite Index (NASDAQ) tacked on 0.89%. Sector breadth was mixed with 6 of the S&P sector groups finishing higher and 4 finishing lower. Consumer Staples (+1.17%) was the best performer for the week while the Energy sector (-1.65%) was the laggard.

Index* Closing Price 5/15/15 Percentage Change for Week Ending 5/15/15 Year-to-Date Percentage Change Through 5/15/15

Dow

18272.56

+0.45%

+2.52%

Wilshire 5000

21997.35

+0.37%

+3.33%

S&P 500

2122.73

+0.31%

+3.10%

NASDAQ

5048.29

+0.89%

+6.59%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 5/11/15-5/15/15

The major market indices finished the week with modest gains. Trading was volatile during the week reflecting an uptick in global bond yields, spotty US economic data, fluctuations in currency prices and the ninth consecutive weekly gain in oil. The rebound in oil has pushed gasoline prices to the highest level since early-December, although they still remain about a buck cheaper than a year ago.

The first quarter economic “soft patch” appears to be carrying over into the April data as witnessed by the disappointing April Retail Sales report.  Despite the growing list of headwinds, the S&P 500 finished the week at a new all-time closing high.  This suggests investors are likely looking beyond the near term soft patch and anticipating a rebound in economic growth in coming quarters.

The weaker data also seems to be pushing out expectations of when the Federal Reserve will start raising interest rates.  While the consensus seems to still be centered on the September FOMC meeting, there is building momentum that a December (or later) move could be in the cards should economic weakness continue – stay tuned.

First quarter U.S. earnings season wrapping up.  Through Friday, 463 members of the S&P 500 have now reported results with nearly 68% surprising to the upside.  Overall reported earnings for the S&P are currently UP 0.6%, solidly better than the expected 5%-plus decline at the start of reporting season. Nevertheless, concern about the strength of Q2 earnings growth remains elevated reflecting the high level of negative forward guidance that occurred during the first quarter reporting season. According to Bloomberg, second quarter earnings are currently forecast to decline by 6.3%.

The Week Ahead:

First quarter earnings season continues to wind down with 24 members of the S&P 500 scheduled to report results.  Retailers will dominate the earnings calendar with results expected from Dow components Home Depot and Wal-Mart Stores as well as several other retailers including Target and Lowe’s. Housing will be the focus of this week’s economic calendar with reports due out on April housing starts & building permits, existing home sales (April) and the National Association of Home Builders’ May housing market index. Other data of note include the April Federal Open Market Committee meeting minutes and the April Consumer Price Index (CPI). A handful Fed Heads will be out and about during the week including Fed Chair Yellen on Friday.

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.

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.

Past performance is no guarantee of future results. 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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