/perspectives/weekly-viewpoint/range-bound,-for-now

Range bound, for now

The Dow Jones Industrial Average (Dow) fell 0.38%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.45%, the Standard & Poor’s 500 Index® (S&P 500) finished off 0.40% and the Nasdaq Composite Index (NASDAQ) shed 0.71%.

June 29, 2015    |    By Mike Schwager

Performance for Week Ending 6/26/15:

The Dow Jones Industrial Average (Dow) fell 0.38%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.45%, the Standard & Poor’s 500 Index® (S&P 500) finished off 0.40% and the Nasdaq Composite Index (NASDAQ) shed 0.71%. Sector breadth was negative with 7 of the 10 S&P sector groups finishing lower.  The Utilities sector (-2.42%) led the way on the downside followed by Materials (-1.85%) and Industrials (-1.19%).

Index* Closing Price 6/26/15 Percentage Change for Week Ending 6/26/15 Year-to-Date Percentage Change Through 6/26/15

Dow

17947.02

-0.38%

+0.70%

Wilshire 5000

21829.85

-0.45%

+2.54%

S&P 500

2101.61

-0.40%

+2.07%

NASDAQ

5080.50

-0.71%

+7.27%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 6/22/15-6/26/15

The major market indices finished the week lower as a lack of clarity on the Greek debt situation appeared to keep many investors on the sidelines.  Outside the “noise” surrounding Greece, the US economy continues to recover from the first quarter soft patch with encouraging news on the housing front. In particular, both new home sales and existing home sales rose last week to their highest levels in at least 5 years.

The markets lackluster performance since the start of the year could be viewed as a “sideways correction” or a “pause to refresh” that may prove to be a launching pad for better performance as the year progresses. The macro backdrop continues to improve and the threat of recession (which almost always kills a bull market) appears remote.  The US economic picture continues to brighten, earnings expectations are low leaving room for upside surprises, and valuation on forward earnings remains supportive.

Earnings: Q2 Preview
Second quarter earnings reports will begin to drip out over the next few weeks and as was the case heading into last quarter, analysts have a gloomy outlook.  The silver lining is that the bar has been set very low, which in turn leaves plenty of room for upside surprises. In addition, the two major headwinds to the lackluster first quarter results—oil weakness and the dollar strength—have stabilized over the course of Q2.  Oil prices, as measured by West Texas Intermediate, are up over 25% since March 31, whereas the US dollar has declined by over 3% during the same period. While bottom-line results will be watched closely, forward guidance from company management will be of equal interest..

The Week Ahead:
The focal point of the upcoming holiday shortened week (markets will be closed on Friday in observation of Independence Day) will be Thursday’s release of the monthly payroll data.  According to Bloomberg, economists are expecting nonfarm payrolls to rise by 230K and for the unemployment rate to dip to 5.4% (from 5.5%). Wages are expected to rise by 0.2% or up by 2.3% on a year-over-year basis. Other economic reports of interest include May pending home sales, the April S&P Case-Shiller home price index, the Conference Board’s June consumer confidence survey, the June ISM manufacturing index, and May construction spending. June auto sales are also scheduled to be released during the week. On the earnings front, about half dozen members of the S&P 500 will report quarterly results. Fed appearances will be limited with only St. Louis Fed president James Bullard scheduled to speak on Tuesday.


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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