Last week’s market trends: The effect of macroeconomic indicators

Chanderlekha Nayar

Must know: The weekly high yield bonds and leveraged loans update (Part 1 of 8)

Disappointing figures

Both manufacturing and housing data released last week showed concerns on where the economy is headed. Weighed down by adverse weather, the Empire State Manufacturing Survey, an index which assesses the business conditions and expectations of the New York State’s manufacturing sector, came in at a lower-than-expected 4.48 versus 12.51 in January indicating a slowing monthly growth rate. The home builders’ housing market index fell very sharply by a record 10 basis points (bps) to a much weaker-than-expected 46, which is the lowest reading since May last year. Meanwhile, the Fed is looking at maintaining current monetary policy. Even when the economy appears to be on a soft upward trajectory, initial jobless claims dipped to 336,000, which is 3,000 lower than expected. The index of leading economic indicators—a composite index of ten economic indicators that should lead overall economic activity was up by a respectable 0.3% in January, leaving mixed feelings about the economy. The U.S. ten-year Teasury yield was down by 1bps as investors viewed economic indicators as a sign of weakness.

Swings in the U.S. equity and bond market

The U.S. equity market rose after the close on Monday, February 17, 2014, as many companies beat the street expectations with relatively affirmative earnings. Two stocks particularly made a lot of noise in the market including a leading U.S. online travel giant Priceline.com (PCLN), which reported fourth quarter earnings that topped analysts’ estimates. Profit, excluding some items, was $8.85 a share in the period that exceeded the $8.30 average analyst projection, according to data compiled by Bloomberg. Revenue rose 29% to $1.54 billion, compared with analysts’ average prediction for $1.52 billion. Another stock that took some investors’ attention was the social media giant Facebook, Inc.’s (FB) announcement to acquire Whatsapp, a privately held instant messaging company for $19 billion. Despite positive earnings releases, decline in the economic indicators nudged the S&P 500 Index (SPY) modestly by the end of the last week.

In line with the U.S. equity market, the U.S. bond market (BND) prices trapped negative arena, while high yield bond price (HYG) continued to increase week-over-week driven by compressed credit spreads. The ten-year BBB Index, which tracks the leveraged loan market, and the ten-year BB Index, which tracks high yield bonds declined by 5bps and 2bps, respectively.

Continue to Part 2

Browse this series on Market Realist: