Relatively positive economic releases out of the U.S. provided uplift to the world's stock markets this week.
-Bernie Williams, vice president, Discretionary Money Management, USAA
Relatively positive economic releases out of the U.S. provided uplift to the world's stock markets this week.
The highlight was Friday's employment report, which indicated that the U.S. added 236,000 jobs in February, much more than expected, combined with a drop in the unemployment rate to 7.7% from 7.9% the prior month. Average monthly job growth is now running at a decent clip of roughly 200,000, enough to move the unemployment rate down, albeit at a relatively slow pace. Other positive releases this week included the Institute for Supply Management nonmanufacturing composite at a healthy 56.0 reading (anything above 50 indicates expansion in the service economy), better-than-expected growth in consumer credit of $16 billion in January, and a 15% increase in mortgage applications for last week.
Dampening the positive news, however, were a 2% decline in factory orders for January, release of the U.S. Fed Beige Book survey indicating mixed results for economic conditions, and a 1.9% decrease in labor productivity for the fourth quarter. We are closely watching labor productivity, defined as employee output per hour. Although rising employment and wages are good for the consumer, they lead to cost pressures for business unless they are offset by rising sales. And with corporate margins at peak levels, profits could come under pressure going forward.
U.S. stocks powered to new highs this week. The famed Dow Jones industrial average hit a new all-time high, and the broader S&P 500 index hit a new 5½-year high, up 2.21% on the week, closing at 1,551, just shy of its all-time closing high of 1,565 reached in October 2007. The S&P 500 has advanced more than 8% year-to-date. However, non-U.S. stock markets have lagged in the recent rally as the dollar has strengthened versus most other major currencies. Treasury bonds sold off, with the yield on the 10-year climbing to an 11-month high of 2.05%, up 0.21 percentage points. Gold rose 0.16% to close at $1,579 an ounce.
