The Markets

Last week, the U.S. Department of Commerce delivered news that was about as welcome as a report of a great white shark sighting off a popular beach during the Fourth of July holiday. The Commerce Department’s third revision of its estimate for economic growth in the United States during the first quarter of 2014 was revised downward – by a lot. Instead of contracting by 1 percent, the economy shrank by 2.9 percent. It was the worst single-quarter contraction in five years.

According to Barron’s, “The number was so bad… it suggested that something more than the weather was to blame for the plunge in economic activity – and that a recession could be in the offing.” Other factors did contribute to the economy’s first-quarter reversal including a reduction in healthcare spending sparked by the Affordable Care Act and the end of emergency unemployment benefits in January.

However, experts warned against making too much of backward-looking data. ING economist James Knightley told The Guardian reaction to the news should be fairly muted as many economists expect second quarter numbers to show significant improvement. PNC Financial Services senior economist Gus Faucher, who was also quoted in the article, concurred:

“The contraction in the first quarter is old news, and things are looking much better for the rest of this year. Most importantly the labour market remains solid… Job gains are allowing households to increase their spending, with higher stock prices and home values also helping. Recent data have been solid, with big jumps in new and existing home sales in May, and consumer confidence recovering after it took a hit in the winter. An expanding global economy will help boost exports…”

Comments from St. Louis Federal Reserve President James Bullard reinforced the view that economic growth remains steady. Last Thursday, he predicted the Fed would raise interest rates early in 2015. Bloomberg.com reported Bullard expects the jobless rate to drop below 6 percent and inflation to close in on 2 percent by the end of 2014.


Data as of 6/27/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.1%

6.1%

21.6%

15.3%

16.2%

5.6%

10-year Treasury Note (Yield Only)

2.5

NA

2.5

2.9

3.5

4.7

Gold (per ounce)

0.4

9.7

6.9

-4.2

7.1

12.5

DJ-UBS Commodity Index

-0.5

8.1

8.4

-4.2

1.7

-0.6

DJ Equity All REIT Total Return Index

0.2

16.4

12.5

12.7

23.6

9.6

S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.  You cannot invest directly in this index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

 

Sources:

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

http://blogs.barrons.com/incomeinvesting/2014/06/25/bonds-gain-on-awful-gdp-data/ (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/06-30-14_Barrons-Bonds_Gain_On_Awful_GDP_Data-Footnote_2.pdf)

http://online.barrons.com/news/articles/SB50001424053111904544004579642472212243800?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/06-30-14_Barrons-For_Stocks_Good_News_Beyond_GDP-Footnote_3.pdf)

http://www.theguardian.com/business/2014/jun/25/us-gdp-fall-what-economists-say-economy

http://www.bloomberg.com/news/2014-06-26/bullard-sees-fed-raising-rates-in-first-quarter-of-2015.html

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