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Weekly Insights

Week of May 18th, 2015

Weekly Market Recap
Start the week off right with this one-page snapshot of headlines and market performance.
Weekly Market Podcast
Start every week by listening to our market strategists' commentary.
Updated as of: 05/18/15
Weekly Economic Update
Stay current on the economic landscape and note changes from week-to-week.  
Lower than expected numbers on international trade, manufacturing and wholesale inventories, and retail sales likely will push the second estimate of 1Q 2015 real GDP into negative territory, from a first estimate of 0.2% q/q saar. Alternative measures of economic growth estimate that the economy is still expanding above 2.0%, especially after tax collection data reflected the major increase in employment over the past year, with income taxes being up 6.0% y/y. Despite some measured weakness this quarter, we see the expansion continuing at its moderate pace.
The April employment report met expectations for job growth, while further data about the March employment situation confirmed a still tightening labor market. April nonfarm payrolls rose by 223,000, and the unemployment rate moved slightly lower to 5.4%. Wage growth was again mild, but the March quits rate rose to 2.0%, suggesting workers are feeling confident enough to leave in search of another job, potentially signaling a coming increase in worker bargaining power. Overall, the labor market appears healthy, despite some indications of a growing skills gap in the labor force.
S&P 500 1Q 2015 earnings season is coming to a close, with about 92% of the S&P 500 market capitalization reporting through last week. Estimates were reduced over the quarter due to continued U.S. dollar strength and low oil prices, leaving room for companies to surprise to the upside. While we are estimating S&P 500 earnings growth to be -5.0%, S&P 500 earnings excluding the energy sector are projected to grow at 9.1%.
Headline consumer prices rose 0.2% between February and March, and are now flat y/y seasonally adjusted, while core CPI inflation firmed slightly to 1.8% y/y. Import and export prices both fell in April, -0.3% m/m and -0.7% m/m, respectively, despite a move upward in energy prices. Final demand producer prices were down -1.3% on a y/y basis in April, although inflation ex-food and energy came in positive at 0.8% y/y.
There were no policy changes in the FOMC's April statement, but it was noted that weakness in U.S. economic data in 1Q is "transitory". The Fed stressed a rate increase would only come after further improvement in the labor market and when the Committee had "reasonable confidence" inflation would hit 2% in the medium term. In March, the Fed lowered its forecasts for both the long-run unemployment rate and near-term economic growth, signaling the Fed sees more slack in the economy than previously thought.
  • Volatility caused by the timing and communication of Fed tightening.
  • Political risk potentially caused by Middle East turmoil and lower oil prices.
  • Deflation worries in other developed economies outside of the U.S.
  • Volatility caused by sharp swings in commodity prices and exchange rates.
  • A slow upward trend in earnings (despite special factors depressing 4Q 2014 numbers), coupled with low interest rates, still make stocks look attractive in relative terms.
  • Cyclical and small cap stocks are generally favored in a rising interest rate environment.
  • High yield bonds look more attractive than Treasuries, but a diversified approach to fixed income investing seems appropriate given likely Fed tightening in 2015.
  • Despite disappointing returns due to a stronger dollar in 2014, international exposure is still warranted given growth prospects abroad.

Guide to the Markets

Guide to the Markets

April 30, 2015 | TOOL

Our popular Guide to the Markets illustrates a comprehensive array of market and economic trends and statistics through clear, compelling charts you can share with your clients.

Use the Guide

Portfolio Discussions

Use select charts from the Guide to the Markets to guide portfolio discussions

Apr 02, 2015 | DOCUMENT

Portfolio Discussion: Fixed income investing

Today, fixed income investors face the impact of eventual rising rates yet still need bonds for diversification. Investing across core, core complement and extended fixed income sectors may help generate income, reduce volatility and hedge interest rate risk.

Apr 02, 2015 | DOCUMENT

Portfolio Discussion: Alternative strategies

Alternative assets can help investors constrain volatility and potentially lift returns over the long term.

Timely Research

Market Bulletins

Mar 13, 2015 | DOCUMENT

Market Bulletin: U.S. equities: The beat goes on

This bulletin, written by James Liu and Abigail Dwyer, discusses how current equity market valuations may affect expected returns.

Topics: U.S. Equities, U.S. Recovery

White Papers

Jan 31, 2015 | DOCUMENT

Investing with composure in volatile markets

This paper discusses three simple principles that can help investors maintain balance in their portfolios: keeping market volatility in perspective, focusing on longer investment time horizons and maintaining portfolio discipline.

Topics: U.S. Recovery

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QP 2Q15: Energizing the global economy 

Apr 08, 2015 | VIDEO

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Dr. David Kelly, CFA

Chief Global Strategist

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Andrew D Goldberg Anastasia V. Amoroso
James Liu Gabriela D. Santos, Market Strategist at J.P. Morgan Funds
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Andrew D. Goldberg, Anastasia V. Amoroso, James Liu, Gabriela D. Santos and David M. Lebovitz

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