If you're a fan of home renovation TV shows then you're probably familiar with the types of bad news home inspections can uncover. Last week, the Commerce Department inspected its previous estimate for real gross domestic product (GDP) growth during the first quarter of 2014 and found some bad news. As it turns out, the rate of economic growth in the United States declined by 1 percent rather than increasing slightly, as previously thought.
The revision sparked debate among economists and politicians about the health of the U.S. economy. According to The Guardian, some economists found the revised numbers difficult to reconcile because they seem to contradict other first quarter economic data - such as expansion of non-farm payrolls, healthy manufacturing activity, and stronger retail sales - which indicate a more positive growth trend.
News that the U.S. economy might have shrunk slightly didn't deter investors at all. The Standard & Poor's 500 Index finished the week at a new record high. This could mean investors are confident economic growth will rebound in the second quarter of 2014 or it may reflect a belief economic weakness in the United States will encourage a more stimulative monetary policy.
The Wall Street Journal suggests signs of slower growth in the United States and Europe are behind the resurgent popularity of emerging markets. If you recall, investors pulled about $60 billion from emerging countries early in 2014 as they worried these markets would be affected negatively by the U.S. Federal Reserve's less stimulative monetary policy. In May, a Reuters' poll found 51 investment houses in the United States, Japan, and Europe had reduced their cash positions to the lowest levels since last November and invested the proceeds in emerging markets.
One expert cited by The Wall Street Journal called the rush into emerging markets a "global chase for yield." No matter what you call it, last Friday, Morgan Stanley Capital International's emerging markets stock index rose to its highest level since October 2013. It was up 3 percent for the year.
|
Data as of 5/30/14
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
1.2%
|
4.1%
|
16.3%
|
12.7%
|
15.3%
|
5.6%
|
|
10-year Treasury Note (Yield Only)
|
2.5
|
NA
|
2.1
|
3.1
|
3.7
|
4.7
|
|
Gold (per ounce)
|
-3.2
|
4.1
|
-11.5
|
-6.6
|
5.0
|
12.2
|
|
DJ-UBS Commodity Index
|
-1.4
|
6.4
|
1.9
|
-7.0
|
0.7
|
-1.5
|
|
DJ Equity All REIT Total Return Index
|
0.9
|
15.1
|
8.0
|
10.3
|
21.3
|
10.0
|
S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
