11-13-2013 01:21 PM
By Bernie Williams, Chief Investment Officer, Investment Solutions
Despite a week filled with news from the Federal Reserve, economic data and corporate earnings reports, none of this data appeared to be a meaningful directional driver for stocks. The S&P 500 finished the week at 1761.60 up 0.13%. The index has risen an impressive 23.5% year-to-date.
The yield on the 10-year U.S. Treasury climbed slightly higher this week, finishing at 2.62%, up 0.11% from last Friday. Gold closed at $1,316.20, down 2.56% for the week.
The Federal Open Market Committee statement released on Wednesday was little changed from September. The statement did not include language from the prior statement regarding the recovery risks from tighter financial conditions. In addition, the Fed did not explicitly signal a time when it would begin tapering its purchase of $85 billion per month in Treasury and mortgage-backed securities; rather, the Fed reiterated that a decision on tapering would depend on future economic data.
A bevy of economic reports were released this week. Generally, the data points to an economy tracking along a slow-growth trajectory.
Industrial production for September rose by a better-than-expected 0.6%, largely the result of higher utilities output due to a warmer than usual September.
Retail sales fell 0.1% in September from the prior month, below expectations for a flat reading. However, the "core" measure of retail sales, which excludes automobiles, gasoline, and building materials, and is used in the calculation of GDP, rose by a better-than-expected 0.5%.
The Conference Board's consumer confidence index fell to 41.2 in October from an upwardly revised 80.2 in September. This is the lowest reading in six months and also was the largest sequential decline since August 2011.
The ISM Manufacturing report for October climbed to 56.4 from 56.2 last month, the highest since April 2011. This reading exceeded expectations and highlighted that manufacturing activity continues to benefit from resilient motor vehicle sales and the recovery in housing.
It was another busy week of corporate earningsreports for the third quarter. According to Factset, the latest batch of reports boosted the S&P 500's blended earnings per share (EPS) growth rate up to 3.1% from last year, versus 2.3% at the start of the week. However, this rate is well below the 6.5% growth expected at the start of the quarter.
Due to historically high corporate profit margins and the expectations for continued subpar global economic growth, we remain skeptical of consensus estimates suggesting S&P 500 earnings growth next year will be approximately 11%.
For more insights on the markets, read our investment outlook for the third quarter.
USAA Investments Managed Portfolio Outlook
Our view of caution toward risk assets remains unchanged. We remain slightly overweight in bonds and cash in our diversified managed portfolios. For investors interested in income-oriented bond investments, the USAA Intermediate-Term Bond Fund, the USAA High Income Fund and the USAA Income Fund are examples. For investors interested in tax-free income, the USAA Tax Exempt Long-Term Fund, the USAA Tax Exempt Intermediate-Term Fund and the USAA Tax Exempt Short-Term Fund are examples.
We also have a small position in gold and precious-metals mining stocks, which we view as attractive as a long-term inflation hedge. For investors seeking exposure to precious-metals mining stocks, the USAA Precious Metals and Minerals Fund is an example. The USAA Real Return Fund also provides potential protection against the risks of long-term inflation.
Emerging markets represent another opportunity. Though they were hit especially hard recently, we believe that emerging markets remain attractive. They offer both an interesting long-term prospect for growth and compelling valuations. The USAA Emerging Markets Fund offers exposure to stocks in less-developed countries.
As always, we encourage investors to speak with one of our financial advisors, who can help determine which investment vehicles are best suited for you based upon your individual goals, objectives, risk tolerance and time horizon.
Economic Releases Scheduled for Next Week:
• Gross Domestic Product (Q3)
• Factory orders (September)
• ISM Nonmanufacturing index (October)
• Employment (October)
This material is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing.
Consider the investment objectives, risks, charges and expenses of the USAA mutual funds carefully before investing. Contact us at 1-800-531-8910 for a prospectus containing this and other information about the funds from USAA Investment Management Company, Distributor. Read it carefully before investing.
Originally published Nov. 1, 2013