The Margin

Artesys News & Insights

Weekly Commentary 5/20/16

The MSCI ACWI IMI global investable equity index finished the week up 0.21%. The S&P 500 finished the week up 0.35%. MSCI EAFE finished up 0.31%. The Barclays US Agg Bond Index finished down 0.62% while 10-year Treasury yields rose from 1.71% to 1.85%. Small Growth led the market last week.

 

We continue to see signs of moderate growth in the US economy and think the Fed will raise rates 25bps in June. From a year ago, Core inflation rose 2.1%, existing home sales increased 6%, median sales prices are up 6.3% while housing starts dropped 1.7% and industrial production is still in negative territory. Contrast this with Venezuela’s hyperinflation, high unemployment, large fiscal deficits, and significant dependence on the price of oil.

 

The US Treasury is looking for ways to effectively and efficiently collecting trade data on government bonds. The announcement came in response to a sudden whipsaw in Treasury prices back in October 2014. The corporate bond market appears to have opened up a little bit this week as Dell, a relatively low rated company, had the second largest bond issue of the year and it was oversold – allowing them to price a slightly lower yield. Negative rates in other countries are leading to strong demand for higher yielding US assets but creating concerns in other areas such as German life insurers and Spanish and Portugese banks (who are trying not to follow banks in Denmark and pay interest to mortgage holders). Projected stock buybacks have decreased by 38% from a year ago.

 

The Government Accounting Office recently released a report on DC savings. The GAO analysis of the 2013 survey of consumer finances found 60% of households have no savings in DC plans and low earners are more likely to not have DC savings at retirement. GAO simulations based on industry research show that auto enrollment, reduced eligibility and vesting requirements, and encouraging rollovers of retirement assets instead of withdrawals when leaving a job increase the probability of low earners having higher DC balances.