The Week In Hindsight; 27 June 2014
US equity investors looked set for another expedition into uncharted territory this week as Monday’s existing home sales data showed transactions, during the last month, reaching their highest level for 2014.
However, the rosy outlook failed to last as incoming data proved insufficient in attempts to support indices close to recent all time highs. Record levels eventually gave way to a modest correction, which was compounded by a substantial downward revision to Q1 GDP figures for the US economy.
Going forward, many economists believe the severity of the Q1 contraction could serve to negate above trend growth throughout Q2. As a result, all round projections for the year now appear to be well founded closer to the 2% level than the previously anticipated 3%.
The next major announcements scheduled for release from the US economy are employment and unemployment figures, which are expected over the latter half of the new week. In the interim, ISM Manufacturing data and pending home sales figures should provide a further insight into the pace of overall economic activity at the close of Q2.
While the greater than expected downward spiral in output during Q1 does negate our baseline scenario for economic growth during the current year, the one off nature (polar vortex) of the contraction leaves the longer term outlook unaffected.
In addition to this, and on a more positive note; the severity of the downturn, past the point of what was expected, could indicate that the economy has much further to run during the anticipated rebound; relative to that which has already been priced in.
Consequently, we remain attracted to equities over other assets and continue to see weakness across developed indices as presenting an attractive opportunity for the medium term. This is despite geopolitical and conflict implied risks which could weigh on prices and confidence over the near term.