What a difference a month makes. After a rough January, the S&P 500 soared 5.49% in February. Inflation gave way to a touch of deflation, home sales cooled off and consumer spending and confidence were disappointing – but the labor market was in good shape and so were the manufacturing and service sectors.
Assumptions of a global slowdown sent stocks further down in January. The blue chips and the small caps both fell more than 3% on the month. Housing indicators were mixed, and the latest data on consumer spending, inflation and retail sales raised some questions. If institutional investors had felt as confident as American households last month, stocks might have performed better. Read more in our February economic update.
When 2014 ended, the S&P 500 had posted another double-digit yearly gain – and while some foreign economies seemed to be slowing or sputtering, ours looked quite healthy. Third-quarter GDP went in the books at 5.0% (up from 3.9% in the second estimate). Consumer spending rose by a very strong 0.6% in November with consumer wages also rising 0.4%. Cheap gasoline and growing consumer confidence seemed apparent factors in the impressive 0.7% November gain in retail sales. Read more in our January economic update.
November was remarkably placid on Wall Street – unlike October, we didn’t see a lot of days marked by triple-digit Dow swings. By the estimate of the federal government, the second and third quarter of 2014 amounted to the best six months for the U.S. economy since 2003. Still, total Black Friday sales were down 11% from 2013 levels, according to National Retail Federation estimates; this could have reflected online sales growth and more stores having deep discounts on Thanksgiving Day.
Wall Street had a dramatic October, as investors grew anxious about the “Big E’s”: Ebola, Europe and easing (specifically, the end of QE3). Ultimately, stocks climbed higher with help from another big E: earnings. Domestic indicators were mostly positive and made the U.S. look like a bright spot in the global economy.
Bullish sentiment certainly waned in September – when the month was over, the Dow, Nasdaq, S&P 500 and Russell 2000 had all retreated to varying degree. The latest consumer indicators were mostly encouraging. Personal spending – which had declined 0.1% in July – rose 0.5% for August. Shoppers were opening their wallets a bit more as inflation remained benign