Housing and Inflation Data Lift Markets08-20-2014 |
Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 8/18/14; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers as of 8/18/14
Housing and Inflation Data Lift Markets
The storm that is the ongoing geopolitical crises occurring in the Ukraine and Middle East seems to have subsided a bit and investors are now turning some of their focus to economic data. Since the beginning of August, U.S. and International Stock markets have reversed the downtrend witnessed throughout much of July and turned in positive returns as evidenced by the S&P 500 gaining 2.6% month-to-date and the MSCI EAFE ex-U.S. (which measures international equity markets) gaining 0.68% for the same period.
Economic data released in advance of the Fed’s conference on the economy and monetary policy in Jackson Hole, Wyoming, showed that homebuilder confidence increased more than expected and an inflation reading remained muted. The National Association of Home Builders releases a monthly index to give an indication of confidence among home builders and August’s reading came in at 55 after rising to 53 in July (a reading above 50 indicates positive sentiment.) In addition to Homebuilder confidence, housing starts also increased 15.7% during July relative to June. This has helped homebuilder stocks gain back some of their losses this year. The S&P Homebuilders Select Industry Index is up over 8% for the month, bringing the year-to-date return for this industry to -4.4%.
In other economic news, the U.S. consumer price index showed that inflation increased only 0.1% in July and 1.9% from a year prior. This tame inflation data has led investors to believe the fed has more room to keep interest rates lower for longer until their goal of 2% inflation is achieved (it should be noted that the fed refers to the Producer Price Index as their gauge for inflation, the difference between the two is marginal and goes beyond the scope of this article but can be explored further here.)
Although some investors and media pundits are having a hard time believing the equity markets can continue to appreciate, we at Hennion & Walsh believe the geopolitical concerns which partially caused the weakness in July, have not had a lasting effect on market or economic fundamentals. While we believe there is always the possibility of short term pullbacks, these pullbacks can be near impossible to predict and attempting to do so can cause a severe drag on the long term performance of an investor’s portfolio.
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