Market Commentary: Markets Pull a 180 This Week

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Following last week’s five consecutive daily declines, stocks reversed course this week and produced four consecutive daily increases through Thursday, highlighted by a 1.6% rally on Monday, the second largest daily increase this year. The markets continue to trade at the mercy of headlines from Europe while volatility has spiked to levels not seen since the end of last year. We expect markets to remain choppy heading into the Greek elections slated for mid-June. Continue reading this week’s market commentary for more information.

By John Toohey, Vice President, Equity Investments

The S&P 500 increased 1.77% on the week and closed at 1318. Ten-year U.S. Treasury yields were relatively flat, ending the week at 1.74% and remain only slightly higher than their record lows. Concerns of slowing growth in China caused commodities to sell off this week as gold and oil fell 1.25% and 0.70%, respectively. Lastly in currencies, the euro hit its lowest level against the dollar since mid-2010.

European policymakers met during the week in efforts to create new policies intended to alleviate stress to the region caused by struggling periphery countries such as Greece, Portugal and Spain. The International Monetary Fund and European Union continue to search for politically viable options to help calm the worsening debt crisis.

Economically weaker countries such as France and Italy have pushed for the creation of “euro bonds” — a form of debt pooling from all countries in the Economic and Monetary Union — despite Germany’s resistance. Germany fears that euro bonds may increase their own borrowing costs while allowing further fiscal slippage in the weaker periphery countries. A number of alternatives have been discussed, most of which would push the region closer to economic and fiscal integration.

Economic data this week continued to send mixed signals for the U.S. while pointing to a recession in the euro area. Overall U.S. housing data was strong as existing home sales rose 3.4% in April to a 4.42 million annualized rate.

Confirming the positive trend, new single family home sales rose 3.3% in April and leave new home sales up 10% compared to last year. Additionally, the Federal Housing Finance Agency U.S. Home Price Index increased 1.8%, far better than the 0.3% expected by economists.

The U.S. durable goods orders data was in line with expectations, increasing 0.2% in April; however, core capital goods orders fell 1.9%, weaker than expected.

This material is for informational purposes and is not investment advice.

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