With so many down days in a row for the U.S. markets, I opened my weekly markets spreadsheets with some trepidation. I was somewhat surprised that the S&P 500 was down only a little less than 1.3% and Europe was virtually unchanged.
Only emerging markets took a hit, but were still down just over 2%, which isn't terrible compared with the recent past. We are not sure which is cause and which is effect, but at a 1.9% decline commodities where down about the same amount as emerging markets; a lot of emerging-market economies depend on commodity exports.
Oil prices continue to struggle, which might also explain why world equity markets in general did not have a great week. The correlation between market performance and oil prices has been growing in 2015. Fed worries generally pushed up bond yields, with the U.S. 10-Year now yielding 2.27% versus 2.21% a week ago. Most other bond yields were also modestly higher on the week.
The bulk of economic news was in Goldilocks territory of not too high and not too low. Employment data was straight down the centre of most forecasts, with a middle-of-the-road, plain-vanilla performance. Auto sales were surprisingly strong, without some of the smoke and mirrors from government statisticians that have been obfuscating recent results. Auto sales growth for all of 2015 may not drop from the 5% level of 2014 that had been widely expected at the end of 2014 and as recently as a couple of months ago.
The ISM purchasing managers' report looked a little soft for July, but a closer look at the report suggests manufacturing strength and not weakness, and new orders accelerated sharply as did several other components. Complete trade data for June looked a little soft, but that was fairly well known last week with the government's new early warning system for the trade deficit. This may help limit massive GDP revisions in the future.
Unfortunately, the combination of decent economic news and a weaker bond market heated up concerns that the Fed would indeed raise rates in September, probably leading to the drumbeat of equity market declines, with the Dow now down seven straight sessions. It makes for great headlines, but on a percentage change basis it was a relatively tame week that doesn't come near the top 10 of bad weeks this year.
