Last week was fairly uneventful with markets experiencing light trade as Christmas split the week. Here is a review of last week’s data as well as a broad look at 2014.
Not much happened in 2014:
A harsh US winter, Russia/Ukraine stand-off, sanctions from the west, onset and conclusion of “tapering”, ISIS/Iraq conflict, escalating deflationary concerns in Europe, China’s softening economic conditions, heavy global oil supplies, and a partridge in a pear tree…
Sorry, couldn’t resist.
The year started off with a harsh winter, which sent the US consumer into hibernation. This led to strong economic performance during the 2nd quarter as the “thaw” set in. The winter became more complicated as Russia and Ukraine tensions escalated leading to sanctions from the west against Russia. These sanctions dealt a massive blow to the Russian economy. Contraction has begun and a recession is projected for 2015. On the heels of the Russian/Ukraine conflict, Iraq was invaded by ISIS increasing oil supply uncertainties and sending prices to their highest mark of the year in June.
Sanctions took their toll not only on Russia, but on an already weak European economy. Struggling with production, exports, and falling inflation, the € fell against a rising $. Measures were set in place to stabilize the €, however additional efforts are expected as current measures have only had marginal impact. China maintains the second largest economy and is expected to surpass the U.S. within the next 5 years. They have struggled this year to maintain the expected growth pace of 7.5% GDP.
As of late, Oil has been making headlines as global oil supplies top demand. In addition, demand is expected to fall dramatically in 2015. This raises concerns over global inflation, the Russian economy, and high yield markets; which are heavily tilted towards energy companies.
Here is year to date performance through 12/26/2014[1]:
- S&P500: 13.01%
- Barclays US Agg Bond: 5.58%
- MS High Yield: 1.02%
- MSCI EAFE NR USD: -4.11%
Last Week
3rd quarter GDP was revised to 5% from 3.9%[2]. This puts the US economy on pace to beat its 2.1% annual average for this expansion. 4th quarter GDP would only have to grow 1% annualized to break out of this expansions rut.
Consumer Confidence in Europe increased in December and French consumer spending increased. Fears still loomed and European Central Bank actions are expected as early as January. Japan saw their industrial production expand at a slower rate than expected. It was also reported that inflation grew at a slower pace, giving rise to a stimulus package that will be focused on specific consumption. Chances of a downgrade in Russia’s debt rating increased last week as S&P announced a likely change to a junk status in 2015. This development increases rate tensions in an already struggling economy.
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[1] www.morningstar.com
[2] www.mfs.com – week in review