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Vail Daily column: So much for an ‘unlucky’ 13

About this column

This financial commentary is prepared weekly by Northwestern Mutual Wealth Management Company. In the Vail Valley, Northwestern’s representatives are Ken Armstrong, Shane Fleury and Steve Shanley. To learn more, call 970-328-7526.

Better-than-expected GDP growth in the Eurozone, a ceasefire in Ukraine and more good news about fourth-quarter earnings added up to push the S&P 500 to its first nominal high of 2015.

The Dow, meanwhile, moved back above 18,000 points and was within striking distance of its record, while the NASDAQ, propelled by earnings from such tech giants as Apple and Amazon, climbed to its highest level in 15 years. The renewed appetite for risk was reflected in safe havens as well, with the yield on the 10-year Treasury moving back above 2 percent as demand tailed off .

For all of the relatively upbeat news out of Europe, the most riveting and fraught story remained that of Greece. Eurozone finance ministers met Feb. 11 to try and come up with a plan that will satisfy both the troika — the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission — which has loaned €240 billion ($270 billion) to Greece while imposing strict austerity measures, and Greece, where the new government was elected on the promise of renegotiating the deal. Early last week, Prime Minister Alex Tsipras appeared before Parliament and said Greece wouldn’t accept its next bailout tranche despite the fact that his government will soon run out of money, pushing for a “bridge plan” until the bailout deal is renegotiated.

Provoking Germany, Greece’s bête noire, Tsipras also said it was his nation’s duty to seek WWII reparations. Wolfgang Schäuble, Germany’s finance minister, took a hard line, saying “it’s over” if Greece doesn’t want the final tranche. The Eurozone’s finance ministers will meet again as the two sides engage in what’s widely seen as a game of chicken. Will the troika and Germany give in and relax the terms of the loan, or will Greece refuse to accept further bailout money, default on its loan and leave the Eurozone, with all that entails? Stay tuned.

Peace, perhaps, and growth, sort of

European leaders met in Belarus and negotiated a ceasefire, but many of the details were left unresolved, and the United States accused Russia of lending weapons and troops for an all-out offensive on Friday before the ceasefire took hold. (In a related story, the IMF extended a $17.5 billion loan to Ukraine to help it rebuild its economy.) Similarly, while GDP growth in the Eurozone came in above expectations, it was only up a modest 0.3 percent from the previous quarter and 1.4 percent on an annualized basis, according to Eurostat. The inarguable positive was Germany’s quarter-to-quarter expansion of 0.7 percent, about twice the estimate, but France and Italy were barely in the black. Only three countries contracted: Cyprus, Finland and Greece. On the plus side, Greece’s GDP grew 0.8 percent in 2014, the first expansion in six years.

Import prices slow, inflation remains tame

Thanks to cheaper oil and a stronger dollar, import prices fell 2.8 percent in December, the Labor Department said, which is the biggest drop since September 2009. It’s one that will keep the rate of inflation low at the same time that the stronger dollar has been hurting American exports; personal consumption expenditures were up just 0.7 percent from a year earlier.

In other economic news, the Commerce Department said that retail sales for January were $439.8 billion, down 0.8 percent from the month before but up 3.3 percent from a year earlier. Wholesale inventories rose 0.1 percent in December, the Commerce Department reported, the smallest increase since July 2013. The small business optimism index fell 2.5 points in January to 97.9, giving back the December gain that took the index over 100. The government’s budget deficit was up 6.2 percent in January from a year ago, the Treasury Department announced, rising to $17.5 billion from $10.3 billion. For the full fiscal year, however, the Congressional Budget Office (CBO) is forecasting a deficit of $468 billion, down 3.1 percent from 2014. The preliminary University of Michigan consumer sentiment index for February was 93.6, down from 98.1 in January. First-time jobless claims jumped 25,000 to 304,000, while the four-week moving average dipped 3,250 to 289,750. The Labor Department also said that job openings rose 3.7 percent to 5 million in December, the most since January 2001, while total hires increased 1.9 percent to 5.1 million, the highest total in seven years. Lastly, with about three-quarters of companies having now reported, fourth-quarter earnings of S&P 500 companies are projected to increase by 7.5 percent.

Heading for a showdown

As expected, the House passed the Keystone XL pipeline bill, sending it to president. The 1,179 mile-long pipeline would carry crude from Alberta to the Gulf Coast, and the president has vowed to veto it because of environmental concerns.

Crude rebounds, for now

Helped by the news about Europe’s GDP growth, the price of a barrel of Brent crude continued its recent rebound, topping $60 a barrel for the first time this year Feb. 13. But the news was qualified by a report of increasing supply despite shutdowns — the number of active rigs in the U.S. is now at a four-year low of 1,056 from 1,609 as recently as October, according to Baker Hughes, and on its way down. Meanwhile, the inventory of U.S. crude oil hit a record of 413 million barrels this week, and the International Energy Agency (IEA) predicted that inventories will rise to an all-time high before reduced investment starts to impact production.

A look ahead

Expect the showdown between the troika and Greece to grab the headlines again this week, but there will also be releases on housing starts and building permits, the producer price index, industrial production and capacity utilization, and manufacturing PMI. The Federal Reserve will also release the minutes of its last meeting on Jan. 27 and 28.

This commentary was prepared for your wealth management advisers by Northwestern Mutual Wealth Management Company.

The opinions expressed are as of the date stated on this material and are subject to change. There is no guarantee that the forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Information and opinions are derived from proprietary and non-proprietary sources. Sources may include Bloomberg, Morningstar, FactSet and Standard & Poors.

All investments carry some level of risk including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance and are not indicative of any specific investment. No investment strategy can guarantee a profit or protect against loss. Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market. The securities of small capitalization companies are subject to higher volatility than larger, more established companies and may be less liquid. With fixed income securities, such as bonds, interest rates and bond prices tend to move in opposite directions. When interest rates fall, bond prices typically rise and conversely when interest rates rise, bond prices typically fall. This also holds true for bond mutual funds. High yield bonds and bond funds that invest in high yield bonds present greater credit risk than investment grade bonds. Bond and bond fund investors should carefully consider risks such as: interest rate risk, credit risk, liquidity risk and inflation risk before investing in a particular bond or bond fund.

The Dow Jones Industrial Average Index® is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Standard and Poor’s 500 Index® (S&P 500®) is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Standard & Poor’s offers sector indices on the S&P 500 based upon the Global Industry Classification Standard (GICS®). This standard is jointly maintained by Standard & Poor’s and MSCI. Each stock is classified into one of 10 sectors, 24 industry groups, 67 industries and 147 sub-industries according to their largest source of revenue. Standard & Poor’s and MSCI jointly determine all classifications. The 10 sectors are Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Telecommunication Services and Utilities.

The NASDAQ Composite Index® Stocks traded on the NASDAQ stock market are usually the smaller, more volatile corporations and include many start-up companies.

NASDAQ – National Association of Security Dealers Automated Quotations. The NASDAQ is a computer-operated system owned by the NASD that provides dealers with price quotations for over-the-counter stocks.

The 10-year Treasury Note Rate is the yield on U.S. Government-issued 10-year debt.


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