Investment Commentary – July 30, 2014

Dow – 16,912.11 (7/29/14 close)
S&P 500 – 1,969.95 (7/29/14 close)
10-year Treasury – 2.46% (7/29/14 close)

  • The U.S. economy posted better-than-expected growth in the 2nd quarter, bouncing back from its worst performance in 5 years.  U.S. GDP expanded at a seasonally adjusted annual rate of 4% in the 2nd quarter.  Consumer spending, business investment and inventory stockpiling all rebounded strongly. Consumer spending, which makes up more than two-thirds of the economy, increased 2.5% in the 2nd quarter, more than double the 1.2% rise in the 1st quarter.
  • Earnings have generally beat expectations in the U.S. and Europe.
  • With 55% of the market cap of the S&P 500 having reported, S&P operating earnings are on track to be a record $28.98 for the 2nd quarter, representing 9.9% year-over-year growth and another record high in profit margins at 10.2%.
  • The interest rate environment has remained remarkably stable, with the yield on the 10-year U.S. Treasury stuck around 2.50%.  Investors have continued to buy bonds amid persistent geopolitical unrest and a stable inflation environment.  Indeed, last week provided more evidence that inflation is not an imminent threat. U.S. consumer inflation was in line with expectations, up 2.1% year-over-year, while core inflation actually surprised to the downside with a 0.1% increase.  This put the year-over-year number at 1.9%.  Despite recent fears over higher prices, for now, core inflation remains well anchored at its 10-year average.
  • In fixed income analysts believe opportunities exist in non-dollar bonds, high-yield corporates, short duration Inflation-indexed securities, and muni bonds.
  • Analysts continue to favor Technology, Energy, and Manufacturing.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.


Click to access cio-insights-macewen-q3-retail.pdf