/perspectives/weekly-viewpoint/momentum-shifting-to-europe

Momentum Shifting to Europe

The Dow Jones Industrial Average (Dow) rose 1.09%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.95%, the Standard & Poor’s 500® Index (S&P 500) finished up 2.02% and the NASDAQ Composite Index (NASDAQ) tacked on 3.15%.

 

February 17, 2015    |    By Mike Schwager

Performance for Week Ending 2/13/15:

The Dow Jones Industrial Average (Dow) rose 1.09%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.95%, the Standard & Poor’s 500® Index (S&P 500) finished up 2.02% and the NASDAQ Composite Index (NASDAQ) tacked on 3.15%. Sector breadth was positive with 9 of the 10 S&P sector groups finishing higher. The Technology sector (+4.27%) led the way higher followed by Materials (+3.01%) and Consumer Discretionary (+2.64%).

Index* Closing Price 2/13/15 Percentage Change for Week Ending 2/13/15 Year-to-Date Percentage Change Through 2/13/15

Dow

18019.35

+1.09%

+1.10%

Wilshire 5000

21727.82

+1.95%

+2.06%

S&P 500

2096.99

+2.02%

+1.85%

NASDAQ

4893.84

+3.15%

+3.33%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 2/9/15-2/13/15

The major market indices finished the week higher reflecting a rebound in oil prices, easing concern surrounding the debt situation in Greece, and better than expected earnings reports from several bellwether companies.

While the U.S. markets are now in positive territory for the year, the real star this year has been the action in the European markets. After underperforming the U.S. markets last year, European markets have posted very strong year to date performance as the macro story continues to improve. The primary catalyst behind the outperformance has been the European Central Bank’s (ECB) announcement that they will embark on a quantitative easing program starting next month. Also adding to the positive tone are signs the Eurozone economy is starting to pick-up (last week it was reported that Germany—the Eurozone’s largest economy—grew its GDP by a better than expected pace in the fourth quarter), the negotiated cease-fire between Ukraine and Russia, the weaker euro which in turn is helping exports, and progress in debt talks between Greece and Eurozone officials. On a relative basis, valuation in the Eurozone also remains supportive.

The sharp rally in European markets, however, has pushed them into a near term “overbought” position. Currently, the percent of stocks in the Euro Stoxx 600 trading above their 50-day moving average has surged to 86%. In the past, moves at or near this level have often foreshadowed a period of consolidation. While this time may certainly be different, a period of profit taking wouldn’t be surprising. With that said any pullback would likely be short and shallow (barring any surprises out of left field) as the ECB’s pending QE program should act as a “safety net” under the financial markets. In other words, pullbacks are likely to be used as a buying opportunity – stay tuned.

U.S. Economic Data – a mixed bag recently
Last week’s batch of economic data continued to suggest the U.S. economy may be losing some upward momentum. In recent weeks, the ISM manufacturing index fell to the lowest level in a year, durables good orders plunged while growth in the fourth quarter slowed to 2.5% from 5.0% in Q3. More recently, January retail sales declined for a second consecutive month, although almost all of the weakness was attributed to lower sales at gasoline stations. Offsetting some of these concerns was the recent surge in payroll growth over the past few months, solid performance from the services portion of the economy and strong auto sales. While it is too early to draw any firm conclusions, the mixed bag of economic data bears close watching.

Q4 Earnings Roundup:
While expectations heading into the quarter were lowered significantly due to the plunge in oil prices and the impact of the stronger dollar, companies are showing modestly better than expected results. Through Friday, 391 members of the S&P 500 have reported results with 70.9% beating expectations and 18.9% falling short. The current “beat” rate remains solidly above the 63% long-term average. Overall reported earnings for the S&P are up 4.1%, solidly better than the 2.4% estimate at the start of the quarter.

The Week Ahead:
Despite being a holiday shortened week the data calendar will be very full. On the earnings front, approximately 50 members of the S&P 500 are scheduled to report earnings next week including Dow-component Wal-Mart Stores on Thursday. The focal points on the economic calendar includes the February Empire State manufacturing survey, and the National Association of Home Builders’ Housing Market index, January housing starts and building permits, the January Producer Price Index (PPI), and the January industrial production and capacity utilization data. Also of interest will be Wednesday release of the minutes from the January Federal Open Market Committee Meeting. The Fed speaking calendar will be minimal with only Philly Federal Reserve President Charles Plosser addressing monetary policy on Tuesday afternoon.


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.

The STOXX® Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

NY Empire State Index is an index based on the monthly survey of manufacturers in New York State – known as the Empire State Manufacturing Survey – conducted by the Federal Reserve Bank of New York. The headline number for the NY Empire State Index refers to the survey’s main index, which summarizes general business conditions in New York State.

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.

Producer Price Index- PPI- is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller.

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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