The Markets
The Russell 2000 continued to be more resilient than its domestic large-cap brethren, which ended the week little changed. The small caps even managed to steal the year-to-date lead from the Nasdaq, which had the week's weakest performance. The benchmark 10-year Treasury yield fell as prices rose after a disappointing jobs report spurred hopes that it might encourage the Fed to postpone rate hikes.
Last Week's Headlines
- The addition of 126,000 jobs to the U.S. economy--the weakest monthly gain since December 2013--left the unemployment rate unchanged in March at 5.5%. The gain was far below the 197,000 average for 2015's first three months, though how much winter weather affected the numbers was unclear.
- The U.S. trade deficit has hit its lowest level since the aftermath of the financial crisis in 2009, according to the Bureau of Economic Analysis. February's nearly 17% drop to $35.4 billion resulted from declines in both imports (down 1.7%) and exports (down 1.4%). Some observers had forecast that the trade deficit might be cut by the stronger dollar and lower oil prices as well as a lingering labor dispute that slowed operations at West Coast ports and was not settled in late February.
- Though the Institute for Supply Management's manufacturing index still indicated expansion, growth in the U.S. manufacturing sector slowed for the fifth straight month. The 51.5 reading was the lowest since May 2013; falling below 50 would mean actual contraction.
- China's manufacturing sector, often viewed as an important global economic indicator, inched upward in March, but the 50.1 reading on the National Bureau of Statistics Purchasing Managers' Index was only barely in expansion territory.
- An agreement with Iran was announced that would loosen economic sanctions there and potentially increase oil exports in return for cuts in Iran's uranium stores, the dismantling of most existing centrifuges, and international inspections. However, the agreement is not final until at least June, when details of the agreement are scheduled to be fleshed out. In addition to the United States, the nations joining in the agreement are Britain, France, Germany, Russia, and China.
- Personal income rose faster than personal consumption in February. The Bureau of Economic Analysis said U.S. income was up 0.4% (0.2% when adjusted for inflation), while spending rose 0.1%. As a result, the personal saving rate rose from 5.5% to 5.8% during the month. After adjusting for inflation, the 2.5% increase in consumption for all of 2014 ate up the 2.5% increase in personal income during the year.
- Home prices in the cities of the S&P/Case-Shiller 20-City Composite Index were essentially flat in January, though they were still 4.6% ahead of the previous January. However, that annual growth rate continued to slow compared to the rapid increases seen in 2014. Monthly gains were strongest in the West and Southwest, while those in the Northeast and Midwest were weaker. The report warned that because home prices have been increasing faster than wages, an increase in interest rates could be "a major setback."
Eye on the Week Ahead
Alcoa's announcement on Wednesday marks the unofficial kickoff to the Q1 earnings season, when investors will be watching to see how overseas profits--and equally important, forward guidance--may be affected by the dollar's strength, and how struggling energy companies' performances might affect benchmark indices' returns. With markets closed last Friday, Monday will be the first chance to see whether investors will view the weak March jobs data as a negative (signaling a slower economy) or a positive that might help postpone a Fed rate hike. And with the potential for a cash crisis in Greece increasing daily unless a fresh injection of financial support is released, any hint of a breakthrough in negotiations with creditors would be welcomed.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.
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