March Monthly Economic Update

MONTHLY QUOTE

“The truth is that there is nothing noble in being superior to somebody else. The only real nobility is in being superior to your former self.”
    

– Whitney Young

MONTHLY TIP

If you know you are spending way too much, going all-cash for a spell might be a good move for your budget and might lead you revise your spending habits for the better.

MONTHLY RIDDLE

Past mountains, plains, and hills, it follows a river while standing still. What is it?

Last month’s riddle:
It begins and ends with E yet it may contain only one letter. What is it?

Lastmonth’sanswer:

An envelope.

March 2015

THE MONTH IN BRIEF
What a difference a month makes. After a rough January, the S&P 500 soared 5.49% in February. Steadying oil prices, solid earnings, improving indicators in Europe and Asia and central bank action all prompted the bulls to run freely. Stateside, inflation gave way to a touch of deflation, home sales cooled off and consumer spending and confidence were disappointing – but the labor market was in good shape and so were the manufacturing and service sectors. February brought some reassuring economic news, and that was all Wall Street needed for a rally.¹

DOMESTIC ECONOMIC HEALTH
Cheaper fuel and energy costs meant two things: less consumer spending and falling consumer prices. Important economic indicators reflected these developments. January’s Consumer Price Index dipped 0.7% (although the core CPI rose 0.2%), resulting in annual deflation in the United States for the first time since October 2009. Personal spending lagged 0.2% during January. The federal government also reduced Q4 GDP in its second estimate, taking growth down to 2.3% from the previously announced 2.6%.^2,3

Consumer confidence retreated, perhaps in the wake of a bad January for stocks and word that gas prices were poised to go back up. February’s Conference Board index slipped 7.4 points to 96.4; the final February University of Michigan consumer sentiment index came in at 95.4, down from 98.1 in the final January survey.^2,4

Fortunately, there was enough good news to offset the bad. The Labor Department’s January jobs report showed 257,000 new hires. Companies were hiring at the fastest clip in 18 years – non-farm payrolls had swelled by an average of 336,000 workers a month from November-January. The unemployment rate did tick north to 5.7% in January and the underemployment (U-6) rate was up at 11.3%, but this reflected an increase in job seekers. Hourly wages were up 0.5% in January, personal incomes up 0.3%.^2,5

America’s manufacturing sector continued to grow and expand. February’s ISM factory PMI came in at 52.9, not too far off of January’s 53.5 reading; the Federal Reserve found manufacturing output up 0.2% for that month. ISM’s service sector PMI had notched a reading of 56.7 for January, rising 0.2 points. Hard goods orders improved 2.8% in January after slipping 3.7% in December. The Producer Price Index declined 0.8% in January thanks largely to a record 10.3% monthly plunge for wholesale energy prices (January saw a seventh consecutive monthly decline).^2,6

Fed chair Janet Yellen underlined the central bank’s commitment to patience on raising interest rates in her February testimony before the Senate banking committee, saying it seemed “unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings.”⁷  

GLOBAL ECONOMIC HEALTH
There was no “Grexit” in February: Greece and the European Union hammered out a deal in principle to extend aid to that nation’s beleaguered economy through the end of June. (Without a deal, the €240 billion bailout for Greece would have ceased at the end of February). Greece remained on shaky ground with the EU and the International Monetary Fund, but at least it remained in the eurozone. A Eurostat flash estimate showed euro area deflation halved in February from January levels (consumer prices retreated only 0.3% annually as opposed to 0.6%). Unemployment ticked down to 11.2% in the 19-country euro area in January, a 33-month low.^8,9

February ended with a surprise from the east: the People’s Bank of China made its second interest rate cut in three months (the benchmark rate was lowered 0.25% to 5.35%). Also, the final February HSBC/Markit China manufacturing PMI showed sector growth again at a better-than-expected 50.7 reading, up a full point in a month. February HSBC/Markit factory PMIs in other key Asia Pacific nations were all above 50 as well: 52.9 in India, 51.6 in Japan, and 51.1 in South Korea.^10,11

WORLD MARKETS
Just how good was February for stocks? You not only had all-time highs for the S&P and Dow by the end of the month, you also had historic peaks for Germany’s DAX and Great Britain’s FTSE 100 and Japan’s Nikkei 225 reaching a 15-year high.¹²

Almost all foreign indices of note rose last month – two that didn’t were Turkey’s BIST 100 (-5.39%) and Pakistan’s KSE 100 (-2.36%). Another two indices actually gained more than 20% for February – Russia’s RTS index (21.60%) and Greece’s ATG index (21.96%). Elsewhere in Europe, you had the following gains: FTSE MIB, 8.95%; STOXX 600, 6.85%; DAX, 6.61%; FTSE 100, 2.92%; CAC 40, 7.54%; ISEQ, 9.24%; Europe Dow, 6.39%. On other continents, more gains: Asia Dow, 4.93%; Nikkei 225, 6.36%; S&P/ASX 200, 6.09%; Hang Seng, 1.29%; Sensex, 0.13%; Shanghai Composite, 3.11%; Dow Jones Americas, 5.50%; Bovespa, 9.97%; IPC All-Share, 7.91%; TSX Composite, 3.82%. February saw the Global Dow advance 5.78%; the MSCI World Index rose 5.68% on the month, the MSCI Emerging Markets Index far less at 2.98%.^1,13

COMMODITIES MARKETS

Oil found a floor and took a step up: on the NYMEX, light sweet crude ended the month at $49.76 a barrel, going +3.32% for February. The big leap was taken by RBOB gasoline, which rose 24.43% on the month. February also saw gains of 14.74% for heating oil and 1.05% for natural gas. Cocoa futures were up 15.59% for February, corn futures 3.58%, cotton futures 7.87%, soybean futures 7.24% and wheat futures 3.59%. Last month’s losers among ag futures included coffee (-15.10%) and sugar (-5.81%).¹⁴

Gold retreated 4.70% to $1,213.10, silver 2.56% to $16.56. Platinum fell 3.60%. As for the U.S. Dollar Index, it wrapped up February at 95.29 (+0.52% on the month).^14,15

REAL ESTATE
Brutal weather across two-thirds of the country held homebuying back. The Census Bureau found new home sales tailing off 0.2% in January. More significantly, the National Association of Realtors measured a 4.9% fall in existing home sales. The NAR did announce a 1.7% January gain in its pending home sales index. According to the latest S&P/Case-Shiller home price index, prices across 20 major metro areas climbed an average of 4.5% during 2014.^2,16

Snow, sleet and ice had also slightly hindered new construction. The Census Bureau reported groundbreaking down 2.0% for January, and there were also 0.7% fewer building permits issued. Starts were still up 18.7% from a year prior, and permits were 8.1% above year-ago levels.¹⁷

Home loan interest rates increased in February. Freddie Mac’s February 26 Primary Mortgage Market Survey found the average interest on a 30-year FRM at 3.80%, a 15-year FRM at 3.07%, a 5/1-year ARM at 2.99% and a 1-year ARM at 2.44%. In its January 29 survey, interest averaged 3.66% for the 30-year fixed, 2.98% for the 15-year fixed, 2.86% for the 5/1-year ARM and 2.38% for the 1-year ARM.¹⁸

LOOKING BACK…LOOKING FORWARD
February brought a major drop for the CBOE VIX; the so-called “fear index” ended the month 36.39% lower at 13.34. The Nasdaq climbed 7.08% to 4,963.53, the Russell 2000 5.83% to 1,233.37, the Dow 5.64% to 18,132.70 and the S&P 5.49% to 2,104.50. February, in fact, was the S&P’s hottest month since October 2011.^1,12

Sources: online.wsj.com, bigcharts.com, treasury.gov – 2/27/15^1,19,20,21

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

March opened with the Nasdaq closing above 5,000 for only the third time in history and the S&P, Russell 2000 and Dow all settling at record levels. Have headwinds suddenly ceased? No. In Europe, the restructured Greek debt deal is still a shaky one, deflation is lingering and the jobless rate is twice ours. Demand for key commodities isn’t where it was two years ago; oil prices are half what they once were. Warnings that the majority of stocks are overvalued continue, with bears maintaining that the S&P will only make a minor gain for 2015. Still, the bulls staged a remarkable return last month and March has begun with the sense that obstacles have been cleared from their path. While this bull market is growing venerable, it does not yet seem vulnerable to many investors.²²

UPCOMING ECONOMIC RELEASES: The roll call of indicators and reports for the rest of March includes ... February’s ISM services PMI, a new Fed Beige Book and ADP’s February job-change report (3/4), February’s Challenger job-cut report (3/5), the February employment report from the Labor Department (3/6), January wholesale stockpiles (3/10), January business stockpiles and February retail sales (3/12), the February PPI and March’s initial consumer sentiment index from the University of Michigan (3/13), February industrial output (3/16), February housing starts and building permits (3/17), a Fed policy statement (3/18), the February set of leading economic indicators from the Conference Board (3/19), February existing home sales (3/23), February new home sales and February’s CPI (3/24), February hard goods orders (3/25), the final estimate of Q4 GDP plus the University of Michigan’s final March consumer sentiment index (3/27), February personal spending and pending home sales (3/30), and finally the Conference Board’s March consumer confidence index and the January edition of the Case-Shiller home price index (3/31).

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«RepresentativeDisclosure»

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Borsa Istanbul 100 Index is a capitalization-weighted index composed of National Market companies except investment trusts. Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period. The RTS Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange. The Athens Stock Exchange General Index is a capitalization-weighted index of Greek stocks listed on the Athens Stock Exchange. The FTSE MIB (Milano Italia Borsa) is the benchmark stock market index for the Borsa Italiana, the Italian national stock exchange. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse.The ISEQ Overall Index is a capitalization-weighted index of all official list equities in the Irish Stock Exchange, excluding U.K.-registered companies. The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region. The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The S&P/ASX 200 measures the performance of the 200 largest index-eligible stocks listed on the ASX (Australian Stock Exchange) by float-adjusted market capitalization. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Dow Jones Americas Index measures the Latin American equity markets by tracking 30 leading blue-chip companies in the region. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies.The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.   Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

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