As we expected, markets in 2014 have been less influenced by politics and policymakers than in 2013 and more dependent upon growth. Growth is an essential characteristic of all living things, and in2014, growth is vital to our outlook for the economy and markets. Our notes from the field contain these key observations and reaffirm our forecasts: After an extreme winter weather-induced slowdown in the first quarter, the U.S. economy began to thaw with the warmer temperatures in the spring. We continue to believe U.S. economic growth is on track to accelerate by about 1%….
The term “behind the curve” has been used to describe a Federal Reserve (Fed) that is perceived to be late in lowering or raising interest rates in response to changing market or economic conditions. The most common use of the phrase is to describe the Fed as behind the curve on inflation. The Fed showed little concern over inflation during last week’s Fed meeting, despite the monthly consumer price index (CPI) report showing a continued rise in price pressures for May 2014 with recent gains accelerating Fed Chair Janet Yellen downplayed the recent rise in inflation as likely “noise,”but the response still left investors questioning whether the Fed is behind the curve. Intermediate- to longer-term bond prices, which are most sensitive to inflation pressures, finished last week (June 16 – 20, 2014) slightly lower, and market expectations of future inflation, as measured by Treasury inflationprotectedsecurities (TIPS), moved higher. The implied breakeven inflation rate on 10-year TIPS rose to near a one-year high….
We devote this commentary each week to assessing the many reasons markets may rise or fall. But at the heart of it, all markets come down to just one thing: buyers and sellers. Taking a look at who is buying andwho is selling can tell us something about the durability of the market’s performance and what may lie ahead. Currently, there are six notable trends in buying and selling in the stock market. U.S. stocks are being purchased by corporations and individuals; however, foreigners, hedge funds, institutions, and insiders are net sellers. Companies themselves have been the biggest buyers of stocks. After reducing purchases during the financial crisis in 2008 and 2009 as companies focused on hoarding their capital, corporations have returned to record levels of net share repurchases….
A large number of key economic reports, central bank meetings, and geopolitical events this week (June 2 – 6) should allow market participants to better gauge global growth as we approach the halfway point of the year. The week includes seven major central bank meetings, with the June 5 European Central Bank (ECB) policy announcement getting most of the attention. The data due out earlier in the week on manufacturing, inflation, unemployment, and consumer spending in the Eurozone for April and May will help to inform the ECB’s decision. On the geopolitical front, Ukraine will be in focus when the North Atlantic Treaty Organization (NATO) meets on Tuesday, and the leaders of the G-7 (the G-8 minus Russia) convene on Wednesday. On Friday, June 6, world leaders will gather to mark the 70th anniversary of the D-Day landing in Normandy. Finally, there are municipal elections in South Korea, and Egypt will announce the results of the presidential election it held last week.