May 27, 2014
Economic themes: Equities, Durable Goods, Ukraine, Housing, FOMC.
- Equities: The S&P 500 closed over 1,900 on Friday, and is trading up at an all-time high this morning. The NASDAQ is trading at an 8-week high, after data has been indicating a strong economic recovery this spring and after weak weather related data over the winter. The S&P 500 index is trading at 16.1x projected earnings, and the volatility index (VIX) touched 11.36, the lowest since March 2013. Traders betting on an increase in the VIX outnumbered those betting on a decrease by 3.4:1.
- Durable Goods: Durable orders increased 0.8% in April, above forecasts of a 0.8% decline, largely due to increases in defense aircraft orders. Results were otherwise mixed, following very strong March numbers.
- Ukraine: Billionaire candy tycoon, Petro Poroshenko, declared a decisive victory in Ukraine’s presidential election over the weekend with 54% of the vote, compared to 13% to his closest challenger. He is viewed as a supporter of the European Union, has pledged to boost the economy, eliminate separatists in the eastern region and to unite a divided Ukraine. Russia appears to be less than pleased; many speculate that Putin will not recognize the pro-west leader as legitimate.
- Housing: The S&P Case-Shiller Home Price Index increased by 1.2% in March, above forecasts of a 0.7% increase, and is up 12.4% over the past year, led by increases in the west. Existing home sales increased by 1.3% in April to a 4.65 million unit pace, though are down 6.8% over the past year, with supply increasing to 5.9 months. New home sales jumped 6.4% to a 433k unit pace in April, though are down 4.2% over the past year. Rising prices have slowed the market, though increases in supply could provide a bump.
- FOMC: The Fed released minutes from the April 29-30 meeting which were in line with expectations, with a focus on normalizing monetary policy and improving market communications. They expect economic growth to pick up after a weak winter leaving GDP forecasts unchanged, and expect inflation to lag their preferred level.
- Economic highlights for the week ahead:
o Thursday, 5/29/2014: GDP, Jobless Claims.
o Friday, 5/30/2014: Personal Income and Outlays, Consumer Sentiment.
Municipal market themes: NPFG, Drought.
- NPFG: Moody’s upgraded National Public Finance Guaranty to A3 from Baa1, due to strong capitalization, earnings, and improving prospects to underwrite new business. Moody’s did express some concern in regards to their exposure to Puerto Rico.
- Drought: Moody’s released a report stating California’s drought will have an adverse impact on the agriculture dependent regions of the State, but should not have a substantial impact on tax revenues. However, if the drought persists for several years, that assessment could change.
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