Sunday, April 27, 2014

U.S. Equity Market Recap for the Week of April 25

U.S. equity markets were down slightly for the week ending April 25. The S&P 500 fell 0.08% and the Dow Jones Industrial Average (DJIA) was down 0.28%. The Russell 3000 which represents the broad U.S. market was down 0.21%. Large-cap outperformed small-cap for the week shown by a -0.11% loss in the Russell 1000 versus a -1.31% loss in the Russell 2000. Technology stocks were also down for the week represented by the NASDAQ Composite Index which fell 0.49%.

The DJIA which traded evenly for the week was down only 0.28% and saw a number of earnings reports that influenced valuations within the index. Exxon Mobil, United Technologies, AT&T, McDonald’s, Travelers, Boeing, Procter & Gamble, 3M, Caterpillar, Microsoft, Verizon and Visa were among the DJIA companies reporting earnings during the April 25 week.

Microsoft’s earnings were a Dow 30 highlight for the week as Satya Nadella gave his first earnings report as CEO and followers were interested in additional information on the Nokia deal which reportedly closed on April 25.

Broader economic factors also influenced the market during the week. On Monday April 21 the Conference Board reported its Leading Economic Indicators Index which showed improvement for the U.S. economy in March. Broad market improvements could indicate increases ahead in U.S. market valuations.

U.S. Credit Market Recap for the Week of April 25

For the week ending April 25, U.S. credit markets saw a decrease in yields. The one-year nominal U.S. Treasury yield was unchanged at 0.11%. The 10-year and 30-year nominal Treasury yields were both slightly lower. The 10-year yield fell to 2.68% from 2.73% in the previous week. Meanwhile, the 30-year Treasury yield was also lower at 3.45% down from 3.52% in the previous week.

During the week increased risks from issues between Russia and the Ukraine pushed investors to seek shelter in U.S. Treasury safe havens, according to T. Rowe Price. Treasury prices increased and yields decreased as a result.

For the long-term market speculators expect longer-term yields to increase slightly as the Federal Reserve tapers its asset purchasing program and gets closer to an increase in the federal funds rate.

Monday, April 7, 2014

U.S. Inflation Still Below FOMC Target

At the Federal Reserve’s March Federal Open Market Committee (FOMC) meeting the FOMC reported it would continue to taper asset purchases in its QE3 program. The FOMC reduced long-term Treasury purchases and mortgage-backed securities purchases by $5 billion each per month. New Federal Reserve Chairman Janet Yellen also indicated an increase to the federal funds rate could be in store in 2015.

The FOMC continues to focus on two main goals for monetary policy decisions, price stabilization and maximum employment.

Price stabilization centers around a focus on the Bureau of Economic Analysis’ PCE Price Index report. The most recent report released on March 28 showed a decrease in the 12-month rate for the PCE Price Index. In February the 12-month PCE Price Index showed an inflation rate of 0.9%, down from 1.2% in January. The Core PCE Price Index which excludes food and energy remained at 1.1%.

The Core PCE Price Index showed continued stabilization in inflation in the U.S. economy while the PCE Price Index overall declined slightly to 0.9% and fell farther from the FOMC’s target inflation rate goal of 2.0%.

On Wednesday, April 9 the FOMC will release its March FOMC Meeting Minutes which may provide additional insight into the FOMC’s perspective and outlook for the two U.S. economic indicators that help guide its decisions on monetary policy.