It was a record-setting week for several market indices. The NASDAQ rose all five days, gaining +3.2% and finally, 15 years later, closing above its 2000 closing high of 5048. The S&P 500 rose +1.8% to close at a record 2117, and the Dow climbed +1.4% for the week closing at 18,080. Mid-caps gained +1.2%, and the small-cap Russell 2000 added +1.3%. Canada’s TSX gained a more modest +0.3%.
Emerging International gained +2.7% and Developed International rose +2.2%. In European markets the German DAX was up +1.1%, France’s CAC 40 was up +1.1%, and London’s FTSE also gained +1.1%. In Asian markets, China’s Shanghai index continued its winning streak with a seventh weekly gain of +2.5%, and Japan’s Nikkei climbed +1.9%.
Turning to commodities, West Texas intermediate crude oil gave up -0.4% to close at $57.42 a barrel. Gold lost almost -2%, closing at $1179 an ounce. Silver, typically more volatile than gold, had its fourth weekly loss, dropping -3.3% to close at $15.72 an ounce.
In US economic news, the Johnson Redbook Retail Sales Report showed same-store sales rose +0.8% versus last year in the April 18 week, continuing a string of modest increases year-over-year. New durable goods orders jumped +4% in March, handily beating expectations of a +0.5% gain but excluding transportation (i.e., jet airliners), orders were actually down -0.2% month over month, and -1.9% versus a year ago.
The National Association of Realtors reported that home sales were at an annual rate of 5.19 million in March. That was a 6.1% monthly increase and the highest rate since September 2013. Sales have shown annual increases for six straight months. The Mortgage Bankers Association reported that applications to purchase a home jumped +5% in the April 17 week. The reading is a +16% gain over the same week last year. Home prices rose again in February as the Federal Housing Finance Agency (FHFA) index rose +0.7%, beating expectations of a +0.6% rise. For the year, prices stand +5.4% higher and only one of nine regions saw a decline. However, new-home sales dropped -11.4% in March to an annual rate of 481,000, well below expectations of 518,000. Inventory increased to 5.3 months from 4.6 in February and the median price dropped for the fourth straight month to $277,400. Mortgage delinquencies dropped to 4.7%, the lowest since August 2007.
The Labor Department reported that payrolls dropped in 31 US states in March with energy producing states taking the biggest hit. Payrolls in Texas decreased by 25,400 — the first decline since September 2010. Oklahoma followed with 12,900 fewer jobs and Pennsylvania, which is the second largest producer of natural gas, lost 12,700. Among the 18 states showing gains, California led with a 39,800 increase in employment and Florida gaining 30,600 jobs. Nevada had the highest jobless rate in the country at 7.1%, while Nebraska was the lowest at 2.6%, the lowest for that state in the last 16 years.
New housing construction investment in Canada rose +2.4% in February versus year ago levels, and single-family home construction gained +0.5%.
The People’s Bank of China cut its lending-reserve requirement ratio to 18.5% to try to stimulate more lending into the economy. Last week it was confirmed that China’s economy had slowed to a 7% growth rate– the slowest since 2009. China’s manufacturing Purchasing Managers Index (PMI) declined -0.4 point to 49.2 in April, a 12 month low and slightly in contraction (sub-50) territory. Employment and new orders both fell, although export orders increased.
The Eurozone economy eased as the flash composite PMI for April dropped 0.5 to 53.5, Markit reported. Manufacturing decreased 0.3 to 51.9 and services fell 0.5 point to 53.7.
In Germany, the Producer Price Index increased +0.1% in March, barely missing expectations of a +0.2% rise. For the year, overall prices were down -1.7%, with energy -4.7% lower than year-ago levels. The German government raised its projection of economic growth to +1.8% in 2015 and 2016, citing a stronger job market and lower-priced oil. The weak euro has also helped Germany’s export-dependent economy. Germany’s PMI dipped to 54.2 in April from 55.3. The manufacturing gauge dropped half a point to 51.9 and services lost a point to 54.4. Both gauges had been expected to rise, but are firmly in expansion territory nonetheless.
France’s economy continues to be at or near stagnation as the composite PMI fell -1.3 points to 50.2 in April, a three month low. Manufacturing fell deeper into contraction at 48.4. Services barely remained above the neutral 50 at 50.8, also a three month low.
The vaguely insulting Wall Street notion of “dumb money” and “smart money” posits that retail investors are the dumb money and Wall Street professionals (known as “institutional” investors) are the smart money. Although this is not always true, it sure has been since 2007, as shown by this chart from JP Morgan:
The relentless rise in the markets since the Great Recession has been marked by continuous institutional investor participation… and continuous retail investor aversion. Interestingly, individual investors who are guided by advisors have mostly participated in the multi-year rally right along with the professionals, while self-directed individual investors are the ones showing the most aversion to the markets.