In the US this week, jobless claims continue to fall ahead of expectations continuing a key theme of strengthening US employment that has persisted for much of 2014 so far. However, housing data is once again mixed, existing home sales for Q2 were strong, but sales of new homes were particularly weak in June largely cancelling out May’s strength. Overall, economic data was mildly positive given the critical importance of employment to the economy, but the prospects for housing recovery are once again in question.
For the week ending Friday, July 25, the markets generally showed only narrow movement with performance for the stock and fixed income funds we include in portfolios ranging between +1.29% and -0.61%. The real winner this week were emerging market funds returning +1.10 to +1.29%, showing materially higher growth than any other asset class we track. We believe that emerging markets are valuable to include in portfolios because they offer international diversification and population growth trends in many emerging economies suggest growth rates may remain robust over the longer term.
The International Monetary Fund (IMF) updated to its World Economic Outlook, reducing expectations for 2014 global growth slightly. This is a routine update and a reflection of the Q1 weakness in the US attributed to inventory overhang and extremely bad weather. Russian growth was also reduced, due to weaker demand associated with the Ukraine conflict. Chinese growth was also revised down slightly based on actions to curb credit growth. However, growth projections still remains firmly in positive territory for both the US at +1.7% and globally at +3.4%. Global growth exceeds the US primarily because of strong anticipated growth in emerging markets.
On the positive side of the IMF report, the Japanese growth forecast moved up as the evidence mounts that the sustained economic problems Japan has experienced could be finally ending. Forecasts for Spain and the UK also edged up. The report also noted the recently more relaxed monetary policy in Europe which appears to have helped markets. The IMF data is largely a lagging indicator of the global economy, so we believe it’s market impact is limited, and indeed we believe that attempting trade on such trends is can be counter-productive relative to staying invested with automatic rebalancing.