February Outlook from Sumner Wealth Management

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Economic Outlook

February 2015

 

Dear Visitor,

Happy February! Well, some interesting things are happening in the U.S. and the World. I am amazed from what I am reading about everything. To ObamaCare to all the fighting in Europe and the Middle East. With all that going on, the Feds are tying to determine if interest rates need to increase or remain the same.  A lot, too much, but that is why I send my outlook to you. Below is a quick snapshot of what is going on in the World.

 

Europe Bolsters Equity Markets     

Bolstered by encouraging economic and geopolitical developments in Europe, equity markets built strong gains. The Dow Jones Industrial Average closed the week above 18,000, and the S&P 500 made its way to a new high. That said, from a broader context and as seen in Chart #1, witnessed stocks rising to just above the high end of a trading range that they have occupied since last fall. With risks still looming (e.g. Europe, slowing earnings growth), any thought to chasing stocks at this point should be considered carefully within the context of one's overall risk profile and long-term financial plan.   

 

Index Returns (%) 

Source:  Bloomberg

Index

YTD

1 Year

Dow Jones 30

1.10

11.54

S&P 500

1.85

14.05

Russell 2000

1.56

6.46

MSCI EAFE

3.64

-3.01

S&P GS Commodities

-0.95

-34.54 

U.S. Trade-Weighted $

4.27

17.45

 

Index Levels

Source:  Bloomberg

Index

 Current Week (2/13/15)

Prior Week (2/06/15)

Year End
(12/31/14)

Year Ago

(2/14/14)

Dow Jones 30

18,019

17,824

17,823

16,154

S&P 500

2,097

2,055

2,059

1,839

Russell 2000

1,224

1,205

1,205

1,149

MSCI EAFE

1,839

1,812

1,775

1,896

S&P GS Commodities

3,202

3,140

3,233

4,891

U.S. Trade-Weighted $

94.12

94.70

90.27

80.14

U.S. 10-Yr Treasury Yield(%)

2.04

1.94

2.17 

2.75

 

Ceasefire & Compromise Boost Global "Risk" Assets

Global "risk" assets received a boost as tensions appeared to be thawing in Europe on two fronts. First, a ceasefire between Russia and Ukraine, sealed by German Chancellor Angela Merkel, French President Francois Hollande, and Russian President Vladimir Putin, is due to start Sunday. While certainly a welcome sign, fighting has continued across eastern Ukraine since the deal was brokered on Thursday. Second, after being deadlocked in what appeared to be a very high stakes game of economic chicken, both European and Greek officials signaled they may be willing to compromise to come to a solution. However, time is of the essence in arriving at an agreement. Greece is low on funds and Eurogroup Chairman Dijsselbloem said Greece must apply for a bailout extension by February 16th in order to keep its financing going.

 

Eurozone GDP Growth Beats Expectations

Last week's Monitor made note that, despite these political tensions making headlines, Europe is seeing early signs of economic improvement, citing easing in bank lending standards and a modest uptick in overall business conditions in January. Building on that momentum, this week it was reported that fourth quarter eurozone GDP growth beat expectations, rising 0.3 percent compared to the third quarter (0.2 percent expected). German economic growth led the way, rising 0.7 percent. While certainly not growing as quickly as the U.S., these growth numbers were a pleasant surprise, and may have been enough for investors to pounce on the relative undervaluation of international stocks as the economic news becomes less bad.

 

  Bottom Line 
Expectations are calling for 3.0% growth in 2015, and I think this is a reasonable estimate for the year.  We expect inflation to remain subdued in 2015, especially early in the year, but   with some movement back toward the 2% mark by year end.

In the equity markets we continue to favor stocks over bonds. While           acknowledging that valuations have increased in recent years, we believe equity valuations are fair due to our expectations of continued U.S. economic growth and the low interest rates environment. Earnings growth will drive equity returns   expect a mid to upper single diget return.

 

To my clients, friends, and colleagues. Thank you for your continued support!  I would like to   hear your thoughts and feel free to forward this on to other individuals who could benefit from this information.

Sumner Wealth Management             

Mark Sumner                                         
Financial Advisor  

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Aris is pleased to present you with the latest issue of the Aris Financial Monitor featuring commentary from Aris' Chief Investment Officer, Davin Gibbins, CFA, on the week that was in the financial markets as well as a look ahead to the upcoming week.  CLICK HERE  to read the PDF version.   

 

Europe Bolsters Equity Markets     

 

Bolstered by encouraging economic and geopolitical developments in Europe, equity markets built upon last week's strong gains with another positive showing this week. The Dow Jones Industrial Average closed the week above 18,000, and the S&P 500 made its way to a new high. That said, from a broader context and as seen in Chart #1, this week's relatively quiet action witnessed stocks rising to just above the high end of a trading range that they have occupied since last fall. With risks still looming (e.g. Europe, slowing earnings growth), any thought to chasing stocks at this point should be considered carefully within the context of one's overall risk profile and long-term financial plan.   

 

 

Index Returns (%) 

Source:  Bloomberg

Index

 1 Week

YTD

1 Year

Dow Jones 30

1.09

1.10

11.54

S&P 500

2.02

1.85

14.05

Russell 2000

1.50

1.56

6.46

MSCI EAFE

1.51

3.64

-3.01

S&P GS Commodities

1.98

-0.95

-34.54 

U.S. Trade-Weighted $

-0.61

4.27

17.45

 

Index Levels

Source:  Bloomberg

Index

 Current Week (2/13/15)

Prior Week (2/06/15)

Year End
(12/31/14)

Year Ago

(2/14/14)

Dow Jones 30

18,019

17,824

17,823

16,154

S&P 500

2,097

2,055

2,059

1,839

Russell 2000

1,224

1,205

1,205

1,149

MSCI EAFE

1,839

1,812

1,775

1,896

S&P GS Commodities

3,202

3,140

3,233

4,891

U.S. Trade-Weighted $

94.12

94.70

90.27

80.14

U.S. 10-Yr Treasury Yield(%)

2.04

1.94

2.17 

2.75

 

Ceasefire & Compromise Boost Global "Risk" Assets

 

Global "risk" assets received a boost this week as tensions appeared to be thawing in Europe on two fronts. First, a ceasefire between Russia and Ukraine, sealed by German Chancellor Angela Merkel, French President Francois Hollande, and Russian President Vladimir Putin, is due to start Sunday. While certainly a welcome sign, fighting has continued across eastern Ukraine since the deal was brokered on Thursday. Second, after being deadlocked in what appeared to be a very high stakes game of economic chicken, both European and Greek officials signaled they may be willing to compromise to come to a solution. However, time is of the essence in arriving at an agreement. Greece is low on funds and Eurogroup Chairman Dijsselbloem said Greece must apply for a bailout extension by February 16th (next Monday) in order to keep its financing going.

 

 

Eurozone GDP Growth Beats Expectations

 

Last week's Monitor made note that, despite these political tensions making headlines, Europe is seeing early signs of economic improvement, citing easing in bank lending standards and a modest uptick in overall business conditions in January. Building on that momentum, this week it was reported that fourth quarter eurozone GDP growth beat expectations, rising 0.3 percent compared to the third quarter (0.2 percent expected). German economic growth led the way, rising 0.7 percent. While certainly not growing as quickly as the U.S., these growth numbers were a pleasant surprise, and may have been enough for investors to pounce on the relative undervaluation of international stocks as the economic news becomes less bad.

 

 

Upcoming Economic Announcements

Source:  Bloomberg

Day

Release

Period

Consensus

Prior

T

NAHM Housing Market Index

Feb

58

57

W

Housing Starts

Jan

1,073 k

1,089 k

W

Builing Permits

Jan

1,070 k

1,058 k

W

Producer Price Index (MoM)

Jan

-0.4%

-0.3%

W

Producer Price Index - excluding Food & Energy (MoM)

Jan

0.1%

0.3%

W

Industrial Production

Jan

0.4%

-0.1%

W

Capacity Utilization

Jan

79.9%

79.2%

Th

Initial Jobless Claims

Feb 14

304 k

304 k

Th

Philadelphia Fed Business Outlook

Feb

9.0

6.3

Th

Leading Index

Jan

0.3%

0.5%

 

Source: Bloomberg

     

 

 

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