Sources: Rates Data and Economic Calendar—Bloomberg Markets as of 2/24/15; Equity Market, Fixed Income and REIT returns from JP Morgan as of 2/20/15.
Markets Focus in on Greece and Yellen
U.S. Equity markets traded off all time high’s on Monday after finishing last week at record levels. So far in 2015, the S&P 500 has logged a 2.82% return while the Dow Jones has returned 2.16% for the year. Mid Cap Growth stocks have outpaced the other market cap “styles” posting a 5.4% return YTD while Small Cap Value has been the laggard returning only 0.3% YTD. On the international front, developed markets have continued to benefit from easy money and a stronger dollar and are, as of Friday’s close, up 5.37% YTD.
European finance ministers have stood strong with respect to negotiations with the newly elected Greek government and last week suggested that they were more than willing to let the debt-ridden nation leave the Eurozone if they were not willing to make additional concessions. As of Tuesday morning, the outline submitted by Greece Monday night appears to have put them on the right track. According to Bloomberg.com, “Euro-region finance ministers approved Greece’s package of new economic measures and paved the way for an extension to the country’s bailout agreement.” While, short term extensions can be likened to “kicking the can down the road,” we are encouraged to see that Greece now appears to understand the weakness of their bargaining chips.
In the U.S., equity markets started the week little changed ahead of Janet Yellen’s semi-annual testimony before the Senate Banking committee. We expect, in the short term, that markets will react to even the slightest hawkish or dovish comments from the Fed as investors attempt to predict the timing of the first interest rate hike. As has occurred many times in recent history, hawkish comments will be followed by rallying yields and a sell-off in sectors like utilities and REITs, while dovish comments will produce the opposite effect. We continue to contend, however, that over the intermediate to long term, performance of both bond and equity markets will be effected more by level that the Fed allows interest rates to rise to as opposed to what month this year (or next) the first rate increase occurs – which we still contend will likely take place this spring.
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