The Calm after the Storm

The Dow Jones Industrial Average (Dow) lost 0.04%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 0.30%, the Standard & Poor’s 500® Index (S&P 500) finished off 0.27% and the NASDAQ Composite Index (NASDAQ) added 0.15%.

March 02, 2015    |    By Mike Schwager

Performance for Week Ending 2/27/15:

The Dow Jones Industrial Average (Dow) lost 0.04%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 0.30%, the Standard & Poor’s 500® Index (S&P 500) finished off 0.27% and the NASDAQ Composite Index (NASDAQ) added 0.15%. Sector breadth was mixed with 6 of the S&P sector groups finishing lower while 4 finished higher. The Telecom sector (+0.96%) was the best performing sector while Energy (-1.96%) was the worst.

Index* Closing Price 2/27/15 Percentage Change for Week Ending 2/27/15 Year-to-Date Percentage Change Through 2/27/15





Wilshire 5000




S&P 500








*See below for Index Definitions

MARKET OBSERVATIONS: 2/23/15-2/27/15

The major market indices finished the week little changed. For the month, the S&P 500 gained 5.5%, the best monthly advance since October 2011 when the index gained 10.8%. The tech-heavy NASDAQ Composite did even better, gaining 7.1% for the month.

The fading of key risk events (Greece debt deal reached, Ukraine/Russia ceasefire, European Central Bank announces QE program) over the last few weeks seem to be the primary driver of recent gains rather than an uptick in macro fundamentals. Economic data of late has been subpar and even though overall fourth quarter earnings are coming in better than expected, this is against very low expectations. More recently there has been growing evidence that the level of complacency is becoming elevated (the VIX on Wednesday fell to the lowest level this year) while the American Association of Individual Investor’s (AAII) Bullish sentiment index showed there are now twice as many Bulls than Bears. Complacency and elevated levels of bullish sentiment are contrarian indicators that often foreshadow a setback in the market. While it wouldn’t be surprising if the market took a “pause to refresh,” the Bull Market in the U.S. still appears intact although lofty valuations could limit near-term gains – stay tuned.

Yellen Testimony
Federal Reserve (Fed) Chair Yellen took to Capitol Hill last week to deliver her semi-annual testimony to the Senate Banking Committee and House Financial Service Committee. Yellen essentially “threaded the needle” by maintaining a fairly balanced presentation. The Fed Chair said “the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of Federal Open Market Committee meetings.” She added that “if economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. Before then, the Committee will change its forward guidance. However, it is important to emphasize that a modification of the forward guidance should not be read as an indication that the Committee will necessarily increase the target range in a couple of meetings.” The takeaway is that the Fed is unlikely to begin raising rates before mid-year and will only do so if the data warrants tighter policy.

Q4 Earnings Roundup:
Earnings season continues to wind down. Through Friday, 482 members of the S&P 500 have reported results with 68.4% beating expectations and 21% falling short. The current “beat” rate remains solidly above the 63% long-term average. Overall reported earnings for the S&P are up 4.3%, solidly better than the 2.4% estimate at the start of the quarter. Looking forward, the outlook for earnings is fairly muted as analysts have sharply reduced their expectations for the first half of 2015 reflecting the impact of lower oil on the Energy sector and the surge in the U.S. dollar that is hurting the bottom-lines of multinational companies. According to Bloomberg, overall earnings for 2015 are currently estimated to rise by just over 2%.

Economic Data:
As has been the case over the past few weeks, economic data has come in on the softer side. Initial Jobless Claims increased by 31K to 313,000 in the week ended Feb. 21, well above economists’ expectations. On Friday, the Commerce Department reported that the first revision to the Q4 GDP showed the U.S. economy grew at a 2.2% rate in the final three months of 2014. The data was revised downward from the initial 2.6% growth estimate and was well off the 5.0% pace seen in the third quarter. Existing home sales (which represent 90% of the residential real estate market) fell 4.9% in January to 4.82M annualized units, the lowest level in nine months. Results were short of the 4.95M units expected by economists. According to the National Association of Realtors, tight supply was partly to blame for the weak results. Inventory levels now stand at just 4.7 months, below the 5.0 month level that is considered a “tight” market. On a positive note, orders for durable goods rose 2.8% in January after a 3.7% decline in the previous month.

The Week Ahead:
The focal point of the upcoming week will be the release of the monthly Payroll data on Friday. The labor market has been a bright spot with the economy adding over 1 million jobs during the past three months. According to Bloomberg, economists are forecasting that nonfarm payrolls will rise by 240K during February with the unemployment rate expected to dip to 5.6% (from 5.7%). Other reports of interest include January personal income and spending, the February ISM manufacturing index, January construction spending, the February ADP Employment Report, the February ISM non-manufacturing survey and the Federal Reserve’s periodic Beige Book. Earnings season continues to wind down with only a dozen members of the S&P 500 scheduled to report, the bulk of which will come from the retailing sector. Fed heads will be out and about with a half dozen appearances scheduled throughout the week including Fed Chair Yellen on Tuesday. Outside of the U.S., Thursday’s meeting of the European Central Bank and the subsequent release of the details behind the asset purchase plan will be a key focus.


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.

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.

VIX - CBOE Volatility Index is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge." 

American Association of Individual Investors – AAII is a non-profit, membership-driven investor education organization. The American Association of Individual Investors (AAII) was founded in 1978 by James Cloonan. The AAII's mission is to teach individuals to manage their own portfolios and to beat average S&P 500 returns, while taking on lower-than-average levels of risk. AAII also publishes the results of its weekly investor confidence surveys that are based on its members' feelings about where the stock market is headed.

National Association of Realtors is a national organization of real estate brokers. The National Association of Realtors was created to promote the real estate profession and foster professional behavior in its members. The association has its own code of ethics that it requires its members to adhere to.

ISM Manufacturing Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

ISM Non-Manufacturing Index is an index based on surveys of more than 400 non-manufacturing firms' purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non-Manufacturing Index tracks economic data, like the ISM Non-Manufacturing Business Activity Index. A composite diffusion index is created based on the data from these surveys, that monitors economic conditions of the nation.

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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