This week, the economic indicators were again mixed with the balance on the positive side. Financial conditions firmed again this week; Bloomberg’s Financial Conditions index reached another new 2 1/2-year high of +0.5 standard deviations; corporate credit spreads narrowed for the third week in a row; the sovereign debt crisis in Greece eased. Most equity markets rallied and most government bond markets fell. Oil prices remained above $81 for the week.


For the past weeks we have seen mixed reports on the progress of the economy, but have not seen a definitive series of releases that indicates that we have crossed into the job creation phase of the recovery. The early releases for the United States in February have shown remarkable resilience given the heavy snow falls in many of the populated areas. The hope is that the resilience of February will give way to job creation in March. The data in the coming weeks will give us insights into whether this hope might become reality.

On a personal note, just under 40 years ago I went from the rivers in Vietnam to the playing fields and classrooms of a New England prep school. Having coached football and wrestling, I was asked by the school to help coach lacrosse, a game that I never played. This weekend, one of our daughters is coming to visit us in Maine during her spring break from teaching at a prep school. She was recently asked to help coach lacrosse, a game she has never played. She is bringing a lacrosse stick and balls so we can play catch. I can’t wait …

Economic releases:

In the United States, retail sales increased +0.3 percent when expectations were for a snow-induced decrease; even without autos, retail sales still grew +0.8 percent. The U.S. trade balance improved to $-37.3 billion on declining imports and exports. The University of Michigan’s and ABC’s consumer confidence still reflect the absence of employment recovery as of mid-March.

In the UK, industrial and manufacturing production fell -0.4 percent and -0.9 percent, respectively, in January, when increases had been expected. In France, industrial and manufacturing production rose +1.6 percent and +0.8 percent, respectively.

The chart below shows the steepness of the yield curve on a historic basis by displaying the yields on U.S. Treasury 2-year (red), 10-year (blue), and 30-year (green) over the last 15 years. As of the close of the week, the spread between 10s and 30s was 93 basis points while the spread between 2s and 10s was 374 basis points. The chart shows that these spreads were similar to those less than a decade ago. In both periods the Central Bank held rates low for an extended time, but long term rates remained high in anticipation of higher rates down the road.

Bond markets:

Most bond markets fell on stronger economic data again this week. Only UK and Hong Kong bond markets rallied.

Mar 12 Bonds


The U.S. dollar rallied against the yen and pound this week.

Economic sectors:

The following table is a new feature using the S&P 1500 Sector indices. These indices include stocks in the S&P 500, S&P 400 Mid-cap, and S&P 600 indices. I have added the Bloomberg REIT index as a separate sector as well as capitalization and growth/value indices for comparison purposes. The best performing sectors are highlighted in green while the weakest are highlighted in red.

Feb 12 Bonds

Source: Bloomberg LP


John W. Davidson of Camden is managing director of Strategic Asset Alliance. He has more than 30 years of investment industry experience and holds an MBA in finance and a master’s in mathematics from Boston College, as well as a bachelor’s in economics from Amherst College.