A better week for most developed markets with the exception of the FTSE 100 as the S&P 500 closed above 1900 for the first time on Friday evening. Much has been made of the recent profit taking in the more economically sensitive indices. Last week the Nasdaq index, the Russell 2000 index of US smaller companies, and the FTSE 250 all finished the week higher than they started. Looking across the performance of other asset classes, the euro lost ground on the US dollar as the US dollar gained ground against its basket of other currencies. Bond markets had a fairly uneventful week, 10-year US treasury yields, at 2.53%, remained close to the bottom end of their 10-month trading range. Gilt yields rose modestly on the week after the inflation data came in slightly higher than expectations, closing the week at 2.59%. European peripheral bonds, that had seen selling in the previous week, finished pretty much where they started. The Vix fell again on Friday to close at 11.36, reflecting the lack of volatility at present in virtually all asset classes.
Fund flow data for the week showed money coming out of equities and back into cash and bonds. The majority of the outflow coming from US equities as nearly $11bn dollars was withdrawn from US equity funds. Investor sentiment continues to show a lack of bullish sentiment. The latest AAII poll recorded that the majority of investors believe the market will remain neutral from here in 6 months time. Day traders continue to run short positions on the major indices. The wall of fear that equity markets are often described as climbing seems to be well intact.
For the week ahead there is nothing much on the economic front in the UK, aside from the continual fallout from the European elections and the implications of the rise, not only in the UK but also across Europe, of the Eurosceptic parties. The General Election is only a year away; politics may continue to dominate headlines as all the major political party leaders continue to be under pressure.
In the US, a week hardly goes by without more economic data for analysts to digest. This week there is a combination of consumer confidence and inflation data, along with jobless and home sales reports. On Thursday we get the second estimate for quarter-on-quarter GDP growth rate. As the investment world continues to wonder if the Bank of Japan will increase its stimulus package, Friday sees a large release of industrial production and inflation data that may influence the Bank of Japan going forward.
As we enter the last week in May, investor sentiment remains reassuringly cautious, as we often point out the markets tend to move in the direction that causes the most pain, one gets the sense that may still be up.