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Market Insights

Market Insights Y1 Banner - GTM 1Q15

Weekly Insights

Week of March 23rd, 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: 03/23/15
Weekly Economic Update
Stay current on the economic landscape and note changes from week-to-week.  
Updated
A second estimate of 4Q 2014 real GDP put growth at 2.2% q/q saar, below the first estimate of 2.6%. The downward revision largely came from a slower inventory build, which means that inventories should be less of a drag on 1Q 2015 growth. A decline in government spending and a rising trade deficit lowered 4Q GDP growth from 5.0% experienced in 3Q 2014. However, personal consumption increased by 4.2%, the strongest increase since 1Q 2006, reflecting an increase in spending on nondurable goods and services. Despite the downward revision, the U.S. economy continues to grow at an above-trend rate.
The Febuary employment report showed broad-based improvement in the labor market. Nonfarm payrolls rose by 295,000, and the unemployment rate fell by 0.2% percentage points to 5.5%. Measures of labor market health unaccounted for in the overall unemployment rate, such as the involuntary part-time work and the long-term unemployment rates also improved. Wage growth, on the other hand, was disappointing in this report, increasing $0.03 overall and remaining flat in the more reliable production & nonsupervisory workers series.
S&P 500 operating earnings are estimated to be $26.67 for the fourth quarter, representing year-over-year growth of -5.6%. Lower earnings were mainly due to low oil prices, a strong dollar, and pension write-offs.
Headline consumer prices fell 0.7% between December and January, and are now down 0.2% yoy, while core CPI inflation remained flat for the second month in a row at 1.6% yoy. Headline inflation declined largely due to a fall in energy and gasoline prices. Final demand producer inflation was down further in Febuary (-0.7% yoy), with weakness coming from a previous 10.3% drop in energy prices. Additionally, import prices decreased 2.5% month-over-month driven by falling energy prices and a stronger dollar, further illustrating deflationary pressures.
There were no policy changes in the FOMC's March statement, but it opened the door for a rate increase this year by removing the word "patient". 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 percent in the medium term. The Fed lowered its forecasts for both the long-run unemployment rate and near-term economic growth, signalling 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

February 28, 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

Jan 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.

Jan 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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Stock market cycles and global diversification 

Feb 12, 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
David M. Lebovitz, Market Strategist at J.P. Morgan Funds

Andrew D. Goldberg, Anastasia V. Amoroso, James Liu, Gabriela D. Santos and David M. Lebovitz

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