Ameriprise Financial: Stocks Start the Week up; Can it Last?
OREANDA-NEWS. February 25, 2016. Equity markets enjoyed their best week of the year last week, driven in part by a firming oil price and anticipation that a floor might be established after several major producers agreed on an output freeze. Despite widespread skepticism that such a move could solve what ails the sector, some investors viewed it as a positive sign that the slide in oil that began in mid-2014 might be nearing its end.
The S&P 500 added 2.8 percent, trimming its loss on the year to 6.2 percent. Even financials came along for the ride, posting just their second weekly gain this year. The especially hard hit banking sector rose 2.2 percent. Stocks were even stronger overseas, as the MSCI EAFE index climbed 4.3 percent, powered by a 7.5 percent gain in Japan. The MSCI EM index climbed 4.2 percent. The ten-year Treasury note yield was unchanged at 1.75 percent, but high yield bonds took their cue from oil as the yield on the Bank of America Merrill Lynch High Yield Master II index fell 37 basis points to 9.66 percent.
Stocks Climb Higher to Start the Week
As this week is getting underway, stocks are climbing higher once again in both Asia and in Europe. Oil is rising and the dollar is firmer against both the yen and the Euro. The pound, on the other hand, is trading lower over worries of the implications if Britain votes to leave the EU in June.
On Friday, the core consumer price index rose to its highest level since June, 2012 at 2.2 percent. At the same time, the headline level climbed to 1.4 percent, its highest since October, 2014. As recently as last September it stood at 0.0 percent. And although the two-year Treasury note rose a rather modest 4 basis points on the day to a yield of 0.74 percent, no doubt the Federal Reserve took note as the report supported the Fed’s long stated expectation that prices would eventually rise toward its target of plus or minus 2.0 percent. Fed funds futures, however, took the inflation report in stride as it nudged only fractionally higher based on expectations of further rate hikes this year.
Watch for the State of the Consumer This Week
This week’s economic calendar in the U.S. will provide a good look at the state of the consumer, the one bright spot on the economic landscape. New and existing home sales follow softer data last week on starts and permits. Both are expected to have slowed somewhat as well. Also on the calendar are personal income and spending data for January. Spending in particular is expected to rebound from a flat reading in December.
There is also a host of earnings reports from the retail sector scheduled for release this week, including Macy’s, Target, Kohl’s, Best Buy and Gap, although consumers have been quite cautious of late when it comes to department store spending. Home improvement stores such as Home Depot and Lowe’s, also scheduled to report, are likely to have fared somewhat better.
The Energy Sector to Remain Top of Mind
The energy sector will also remain front of mind. The annual IHS energy conference takes place this week in Houston, with the Saudi oil minister, U.S. energy secretary, Mexican president and Fed vice-chairman among the scheduled speakers. The Credit Suisse energy summit also takes place this week in Vail.
This week we are also getting the latest readings on global manufacturing activity, with reports in Europe, Japan and the U.S. In the Eurozone manufacturing slipped, but remained in expansion mode. Germany, in particular, weakened more than expected, while France improved. Japan slipped as well, and as with Germany, remained barely in expansion mode. The U.S. data was out later on Monday.
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
Morgan Stanley Capital International EAFE Index (MSCI EAFE), an unmanaged index, is compiled from a composite of securities markets of Europe, Australasia and the Far East.
The MSCI Emerging Markets Index captures large and mid-cap representation across 23 Emerging Markets (EM) countries. With 837 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
The Bank of America Merrill Lynch High-Yield Bond Master II Index is an unmanaged index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.
The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. Changes in CPI are used to assess price changes associated with the cost of living.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.